Silver’s Industrial Demand: The Best Is Yet to Come

As the price of silver searches for a bottom, and as many wonder if the precious metals’ bull is over, it is worth re-examining the other source of demand for silver: namely, from industry. This is also important if in fact the world is moving toward some kind of recovery, where you would think the price of silver would catch a bid from industrial users.

In recent years, the rise of the silver price has come almost exclusively from investment, or monetary demand (an important reminder for anyone who claims silver isn’t money, by the way.) But there have been periods of time when silver’s industrial demand drove the price of the white metal higher. In the period between roughly 1900 and 1970, industrial demand for silver increased over 4 times- from 100 million to 400 million ounces. The industrial revolution in silver was due largely to the urbanization and technological revolutions taking place in twentieth century life. Whether we are talking about indoor plumbing, electricity, cars, or aerospace technology, silver proved to be an indispensable metal. One of the largest industrial uses for silver came from photography, invented by Frenchmen Nicephore Niecpe in 1822, and made more popular by Daguerre in the 1840s. By the twentieth century millions of ounces of silver were needed just for photography. But in terms of silver demand, this was just the tip of the iceberg.

Still, at some point around 1970, the industrial demand for silver stopped increasing (for a time it actually decreased.) Over the next several decades, industrial demand increases have been far smaller, after having reached the 400 million ounce level in 1970. During the last four years, industrial demand (including photography) has been around 550-700 million ounces annually. So you can see that the growth in industrial demand has slowed significantly over the last 40 years. But many in the silver industry think this could change, and that industrial silver demand could begin to move toward 800 million ounces a year, or even higher.

The reasons for this growth should not be hard to understand: silver is in many ways a more versatile industrial metal than copper. James Blanchard was fond of pointing out how the average American used several items with silver in it even before he or she left for work in the morning: silver is in your alarm clock, wall switch, wristwatch, bathroom mirror,computer, cellphone, I-Pad, the plumbing in your bathroom or kitchen, your microwave, water purifier, dishwasher, and, especially if you wear polyester, it is used to make many forms of clothing.

Silver is used in computers and cell phones. Batteries need silver for their cathode or negative side. Silver oxide cells are used in cameras, toys, hearing aids, calculators, and even though they are expensive, silver oxide cells are seen as a more environmentally friendly version of the lithium-ion batteries used in everything from consumer electronics to electric cars. Silver electroplated steel ball bearings are used in jet engines, because the silver provides superior performance and lubrication in the event of an engine shutdown. Membrane switches, which require only a light touch, use silver, and these switches are now part of televisions, telephones, microwave ovens, and computer keyboards. Silver is used to coat CDs and DVDs because the white metal is resistant to pitting and tarnish. Silver is also useful in brazing and soldering- meaning in the joining together of materials, producing leak tight and corrosion resistant joints. Silver tin solders are used to bond copper pipes and faucets. Refrigerators also rely upon silver soldering and government regulations are mandating greater use of silver soldering, due to concerns regarding the toxicity of customary tin/lead solders.

Although the vast majority of wiring uses copper, this is only because copper is so much cheaper than silver per ounce. Silver is an amazing conductor of electricity at practically any temperature, and it is possible that silver wiring may gain attention in the future. In the United States, HTS wiring carries over 140 times as much current as copper, and it is believed that this wiring is far better at preventing power surges or other inefficiencies which can lead to transmission losses within our power grid. HTS transformers are more environmentally friendly and don’t use as much oil as their counterparts. Understand that HTS wiring is by no means prevalent, and may not be for a long time. But it is also important to note that as science and technology evolve, and as more and more countries move toward green technology, silver can play an even more important industrial role than at present.

Silver is also a useful catalyst, especially in the creation of ethylene oxide and formaldehyde, both of which are essential chemicals for plastics, polyester clothing, adhesives, resins, scratch resistant coatings, and antifreeze coolant for automobiles and other vehicles. Because silver interrupts a bacteria cells ability to form chemical bonds needed to survive, silver is an excellent anti-bacterial agent. For this reason, silver is useful in hospitals trying to find equipment that can kill the MRSA (Methicillin-resistant Staphylococcus aureus) “superbug.” Silver is also used in burn ointments. Increased demand for silver as a medical-metal, or as a sanitizer can come from very high end uses. For example, it is now possible to embed silver in countertops, and possible to put it in clothing, even underwear (in addition to silver’s uses in the production of other fibers). For a long time, the Indian sari contained some silver in it- this attests to the age-old desire for the white metal as a defense against disease.In addition to jewelry and silverware, silver can be used in horse saddles, or other equestrian equipment, and is also present in many musical instruments, ranging from bells to flutes.

But even in a severe recession, silver demand can move higher because there are so many non-luxury goods and gadgets that need silver now, or will need it in the future. For example, David Morgan has simply looked at applications for silver relating to food, water, and energy. These are the three things people need the most, and they are three areas that will likely need a lot more silver regardless of prevailing economic conditions. These three areas will also contribute to increased silver demand in ways that cannot be easily recovered (at least for now.) Most people understand that many governments are pushing solar energy as an alternative to present energy sources. But solar energy uses silver, especially because silver paste is used in 90 percent of all crystalline silicon photovoltaic cells. If you live in the American Southwest, you have seen the growth in solar technology in order to help get homes and businesses off the power grid. Silver coated mirrors are also used to create scalding hot water, which then becomes steam and is used to run electric generators. From these kinds of uses for silver, experts predict the possibility of an additional 80 to 100 million ounces of silver demand per year. As of this writing, much of this silver is unrecoverable, meaning that it will likely be consumed.

Another area of strong demand will come from newer water purification systems that are employing silver instead of more toxic chemicals such as chlorine and bromine. In pools and spas silver ion canisters can spread a biocide blanket easily to ward off disease. Silver is also used in personal water purification tubes. David Morgan is also impressed with the possible uses of silver in food processing- particularly in packaging. With nanotechnology, you can impregnate silver into plastic sheets as a way of keeping bacteria out. Silver for RFID tags (a scanning device used to replace bar codes) will be needed to put these tags in cars, bank debit cards, or casino chips, and could also push industrial demand dramatically higher.

Because of all of these new industrial uses for silver, some experts believe that silver will be moving back into a deficit situation, meaning that more above ground stockpiles will have to be consumed to meet demand and the above ground stock of silver will once again decline. Put another way, there are several possible reasons- in addition to investment demand- that could allow for silver prices to explode. It is true that jewelry scrapping could increase to fill the deficit, and that jewelry demand could decline. It is also possible that recycling could eventually increase. But these factors may not yield any more than 100-200 million ounces of silver in a given year- or 5 or 10 billion dollars at 2011 prices. And investors may very well stand in to make up the difference, since silver is still so much cheaper than gold, therefore eliminating the benefits to supply from declining jewelry production and increased recycling. Silver bulls like Morgan, as well as Izzy Friedman and Ted Butler wonder if there might not be a moment when silver industrial users hit the panic button and drive silver dramatically higher, as they try to get their hands on an asset that is also sought after as an investment hedge by millions of retail investors. This industrial panic could far exceed the one for palladium in 2000. In that year, Ford Motor Company feared a shortage and bought large amounts of palladium in response to disruptions coming out of Russia, one of the world’s largest palladium producers. The price of palladium skyrocketed to nearly 1100 dollars an ounce, or over 3 times the price of just 18 months earlier. And this occurred to a metal that had limited investor interest: it was all about the industrial users getting scared and scrambling to buy whatever they could. Silver, which is more versatile and cheaper than palladium– and which has a history of being a monetary metal– could see a much larger price spike due to its industrial and monetary or investment uses.

If the global economy is in fact in recovery, given that there are hundreds of millions of people who would likely want some or all of the technologies mentioned above, you would think that silver's industrial demand will begin to move higher. It may take a while, but with silver ore grades continuing to decline and with declining mining stock prices perhaps signalling a permanent downshift in mine production, it may just be that silver's industrial uses may receive more attention in the years ahead.

About the Author

ryanjordan [at] sandiego [dot] edu ()