How solar cells affected the silver price—and how it didn't.
[This is Part 2 of our 3-part series "Changes in the Silver Market." Click here to read Part 1.]
The photovoltaic industry didn't start to appear on charts of silver demand until the year 2000, when it consumed approximately 1 million ounces.
Those 31 tonnes were barely a blip on the silver consumption chart. In fact, in comparison with the smallest of the large consumers at the time—which was electronics—it was not even one-tenth of their consumption.
Few expected the solar cell industry to become an important player in the silver market for years to come. Indeed, it was not until the year 2008 that the industry reached any volumes of importance, consuming nearly 19 million ounces (590 tonnes). That was barely 2.5 percent of total fabrication demand according to data from New York's CPM Group.
But what happened in silver's global economy was, in a word, government. Major subsidies were given for the development and promulgation of solar energy by sovereign states. Germany was at first the largest consumer, and was then followed by many other European nations in this objective. But it was not until Washington began to offer subsidies to U.S. energy producers that the silver consumption for these products became of major importance.
The photovoltaic industry in certain countries became very important sectors of the economy. With the global economic crisis starting five years ago, many were to suffer. Spain specifically suffered tremendous economic losses in this industry when the state pulled its subsidies. This has been a major concern for developers and business involved in solar energy.
However, this was at about the same time that the U.S. began to offer subsidies to this industry. So people who sold or produced solar cells were finally poised to make money, now that the world's largest economy was behind it. At this point, silver demand for the photovoltaic paste needed to produce solar cells was growing at a rapid pace.
Suddenly, in the last quarter of 2009, and going into 2010, photovoltaic demand for silver exploded. Demand rose at a rate of 50 percent from the year before and would do so again in 2011. At this time, the price of silver also began to soar.
Was this new demand the driver of the price of silver? The answer simply put is no. Unfortunately for this industry, the timing could not have been worse.
The silver price began to move in leaps at the height of the photovoltaic industry's demand, raising the production costs of their end product. And because the PV industry needed a specific form of 999.9 silver (as opposed the standard 999 parts per thousand fineness in the wholesale market), the amount needed was not readily available. This caused a disruption in the marketplace. In a matter of a few months, the silver futures market on the Comex exchange would go into backwardation, with near-term prices rising above prices for delivery further into the future.