By Rachel Koning Beals
Published: Nov 10, 2017 3:39 a.m. ET
Self-driving cars, solar power and health care will all demand more of the white metal
A driverless car from Alphabet unit Waymo. Auto technology will continue to be a large user of industrial metal silver.
Prospects for tighter interest-rate policy, dollar strength and record-setting stock levels continue to push and pull at metals prices, including a silver market that straddles the line between an investment asset and industrial necessity.
A longer-term view of silver’s prospects, however, requires a closer look at its industrial role, where high-growth industries including self-driving cars, solar power and health care will call for more silver over coming months and years.
Demand prospects were among the largely upbeat takeaways from a Silver Institute conference late last month.
As for autos, car talk these days actually means technology talk—and technology demands silver.
Steve Gehring, vice president of safety and connected automation at trade group Global Automakers, made a case at the conference for silver’s role in auto-industry trends, saying demand will be particularly boosted by safety upgrades in both human-powered and driverless autos. Rear cameras, night vision, rear-object detection and lane departure warnings are examples of auto technology that relies on silver.
Meanwhile, silver’s continued use in solar power remains in flux, but change could be slow. Silver is used in panels via silver paste, which contains about 90% silver powder, with the remaining 10% comprised of mostly glass and binding agents.
The industry is trying to reduce its silver reliance with alternatives but for now, “despite panel manufacturers actively working on ways to reduce silver loadings per cell, overall silver use is to increase at least through 2020 due to growing solar installations,” driven in large part by expansion in China and the European Union, Larry Wang of Heraeus Photovoltaics told conference attendees.
The cars of the future are also expected to have more solar panels on their exteriors to add power to the network, while fast-charging stations will have solar panels, again lifting demand for silver powder until an alternative is found.
A third growth area is health care, hinging in large part on silver’s valuable property as a bacteria killer, including in silver-imbedded bandages and silver-coated catheters.
Silver use in glass touch screens in the medical field is another notable application. Dr. Trevor Keel of Agility Health Tech explained to the silver group that “not only is the light transmission rate 98% for silver versus 96% for graphene and 91% for indium tin oxides, but the antibacterial properties of silver make it ideal for use in touch panels.”
For example, Corning GLW, -0.28% has developed the world’s first antimicrobial cover glass as part of the Gorilla Glass product family, using silver. This glass has wide applicability with benefits in smartphones, tablets, automotive and architectural use. And in another example of evolving industrial use, private Silicon Valley-based company Folia Water has developed a relatively inexpensive water filter that is manufactured by applying silver to round paper filters.
On top of demand trends, there are supply factors in the industrial-use equation that are also supportive to prices.
“The overwhelming consensus was that the current silver price is too low, given difficulties finding and developing new mines and increasing political risk — governments wanting bigger pieces of the mining revenue pie, such as what’s happening in Tanzania,” said conference attendee Maria Smirnova, a senior portfolio manager at Sprott Asset Management LP, the lead portfolio manager of the Sprott Silver Equities Class and a co-manager of the Sprott Gold and Precious Minerals fund.
Silver futures prices SIZ7, -0.41% are up roughly 7% so far in 2017, according to FactSet data, using the most-active contract. The exchange-traded iShares Silver Trust SLV, -0.59% ETF is up 6.4% year to date.
Industrial metal demand is showing its strength elsewhere in the complex. Palladium futures finished above $1,000 an ounce for the first time since early 2001 on Wednesday, as the metal continues to find support from strong global demand and tight supplies, including for the Chinese auto market.
Read: Palladium just settled above $1,000 an ounce for first time since 2001
Even with these demand factors in mind, the investment characteristics of silver can’t be ignored either, said Smirnova, who sees a bullish case here as well.
“The current price environment is in large part due to investor perception that the U.S. economy is strong and the Fed will continue tightening monetary policy (raising interest rates) and President Trump’s promised tax cuts and fiscal stimulus will further boost growth,” she said, adding she believes that view is overdone.
TD’s global head of commodity strategy, Bart Merek, echoed that belief at the conference. He suggested the Fed will likely not hike as aggressively as the market thinks as central bankers do not want a disinflationary environment and given the lack of concrete widespread inflation so far, the Fed will err on the side of caution. Higher interest rates typically cut investment demand for nonyielding silver and gold in favor of assets that do offer a yield.
“We believe that Trump’s policies will not be revenue-neutral and will lead to budget deficits [that hold down interest rates]. We believe in lower rates, particularly real rates, for longer, which is positive for both gold and silver,” Smirnova said.
Gold prices GCZ7, -0.93% notched their highest finish in nearly three weeks on Wednesday, as the U.S. dollar index took a break from multimonth highs.