Silver: where beauty meets conductivity

Laurent Joué Head of Systematic Alternatives and Lead Portfolio Manager	Marc Pellaud, PhD Lead Portfolio Manager	Thomas Hohne Sparborth, PhD Head of Sustainability Research	Alexandre Garrett, CFA Senior Roadmap Analyst

 

Long prized for its aesthetic qualities, silver is also highly malleable and durable, and it is an excellent conductor. Growing use in industrial applications is fueling demand for this precious metal as the energy transition progresses¹. 

 

Need to know: Used for millennia to make jewellery, coins and ceremonial artefacts, as well as practical containers and utensils, silver is increasingly employed in technological applications Silver is highly valued for its unique properties and established performance, despite some substitution risks. Its use as a transition material is likely to increase Although net demand growth for silver is only around 3% per year, constrained supply underpins our strong conviction in having long-term price exposure

 

Silver: an introduction

Like gold, silver has been sought after for millennia as a store of value and to make jewelry. It is rarely mentioned in the context of the energy transition, unlike metals such as lithium, cobalt, nickel or copper. This is an omission, for several reasons. 

First, silver has the highest electrical conductivity of any metal; second, it is soft and malleable and therefore easily shaped; and third, it is durable. These qualities make it invaluable in electrical and electronic applications. Silver is an ideal material for coating electrical contacts, such as those on printed circuit boards, while painting silver ink on any surface provides an electrical pathway, eliminating the need for wires. 

Thanks to these properties, the use of silver in industrial applications has been on the rise, today accounting for over half of all silver use. About 14% of the total is attributable to solar panels, one of the fastest-growing applications, making the metal a key transition material. Figure 1 breaks down demand by use case.

 

Top silver-producing countries	Mexico (24.2%), China (13.6%) and Peru (13%)
Top reserve holders	Peru, Poland and Chile
Top uses	Historically, the biggest use was monetary (bullion and coins). However, by the 1960s, the demand for silver in industrial purposes such as in medicine, alloys, chemical equipment, solar technology and automobiles exceeded total annual world production

 

FIG 1. Estimated global demand for silver by use case, 2023 (%)

Source: LOIM research, based on the Silver Institute (2023) and Metals Focus.

 

 

 

Substitution risks

There are some substitution risks for silver in industrial applications. For example, copper, aluminium and some alloys have the potential to substitute for silver when electrical and thermal conductivity is required, although they may not always provide the same level of performance. Meanwhile, gold, palladium and various metal alloys can be used in place of silver in electrical contacts. Alternative antimicrobial agents and technologies are also being developed. 

Overall, however, silver continues to be valued and widely used in many applications due to its unique properties and established performance characteristics. On current evidence, its use as a transition material is likely to increase, in our view. 

Supply sources

Mined silver accounts for 70-75% of overall demand, with the rest coming from recycled sources. Nearly three-quarters of mined silver is produced as a by-product from the mining of other metals – including lead, zinc, copper and gold – with only about 27% of production coming from primary silver mines². The high proportion of silver that is a by-product affects the metal’s supply dynamics: changes in silver demand and prices have limited impact on overall mining revenues, and therefore filter through to mining capacity and production plans relatively slowly. Mexico, China and Peru jointly account for about half of all global production, making supply sources comparatively concentrated, as shown in Figure 2 below. 

FIG 2. Share of global silver production by country, 2023 (%)

Source: Mineral Commodity Summaries 2024 (2023 data), p. 163. For illustrative purposes only.
 

 

Processing silver Having been extracted, silver ore is crushed and often purified by froth flotation. In some cases, the ore is treated by smelting. Silver is then extracted by a cyanide process akin to technology used for gold extraction. The metal can also be produced during the electrolytic refining of copper and by the application of the Parkes process on lead ores.

Silver production is forecast to grow by 3% in 2024 to reach an eight-year high of 1.2 billion ounces, with the increase due to a recovery in mine output³. In contrast, silver recycling volumes are expected to fall by 3% to a three-year low. Overall, the structural supply deficit in the silver market is set to continue in 2024 for the fourth consecutive year. 
 

LOIM investment conviction

We believe silver has a large positive exposure to the energy transition. Historically, it has mainly been used as a store of value and in consumer goods – both mature and established applications that have seen only limited growth. Going forward, the use of silver in solar photovoltaic (PV) applications exposes it to a structural source of growth that may strain present supplies. 

Nearly all the additional demand until 2030 will come from opportunities linked to the energy transition, in our view. Based on our forecasts, the percentage of total silver output used in solar PV cells could increase from 14% in 2023 to over 30% by 2030. In contrast, use in other industrial applications may see some rationalisation due to ongoing efforts to reduce intensity of use as part of cost savings. However, overall this should lead to demand growth of about 3% per year. 

While this increase in demand may seem modest, it will not be met by increased supply, which looks set to remain stable or even decline somewhat. Although secondary (i.e., recycled) supply is growing at about 2% per year, primary supply is falling. This is because some of the world’s leading primary silver mines are facing declining grades and reserve depletion, while increased by-product supply remains contingent on markets and prices for other metals.

FIG 3. Silver demand versus supply broken down by source, 2019, 2025 and 2030

Source: Scenario based on LOIM calculations. For illustrative purposes only.

The LOIM Transition Alpha conviction for silver is high (Table 2). In our view, excess structural demand growth combined with constrained supply is likely to drive prices higher. In theory, any gap in supply could be met by increased primary or recycled production, improvements in resource efficiency in industrial applications, or substitution by other metals. However, all of these actions would be contingent on a price signal, giving us conviction in the long-term positive exposure of silver prices to the energy transition. 

TABLE 2. Alpha conviction matrix – Silver 
 

Geological reserves4	Transition exposure5	Demand growth to 20306	2030 supply gap7	Theoretical substitution potential8	Potential increase in recycling7	Supply disruption risk (*)8	Alpha conviction7
22	33%	3%	46%	5%	6%	Low	High

(*) estimated on country-level concentration of global production, governance of supplier countries, including environmental aspects. Source: LOIM. For illustrative purposes only. 

Environmental and social considerations

Silver itself is generally considered to have low toxicity to humans and is a naturally occurring element, but it can be toxic to aquatic organisms. Mining and processing silver can have environmental impacts, including deforestation, water pollution, soil degradation and air pollution. Silver mining can also have social and cultural impacts on populations. To mitigate these environmental considerations, responsible mining practices and regulations are essential. 

Market analysis

Silver is traded on major commodities exchanges around the world, including the New York Mercantile Exchange (NYME), the London Metal Exchange (LME) and the Chicago Board of Trade (CBOT). Silver delivered under the NYME COMEX Designated Contract Market must assay a minimum of 999 fineness – i.e., it will be 99.9% pure.

FIG 5. Historical price of silver in USD

Source: Bloomberg, as of May 2024. For illustrative purposes only. 

 

Conviction statement

Our outlook for silver is based on three key factors:

• Properties and performance. Silver has the highest electrical and thermal conductivity of any metal. It is also highly malleable and durable
• New use cases. Its growing use in technological applications – particularly solar panels – make silver a key transition material
• Supply-demand imbalance: While demand growth is relatively modest, at about 3%, supply is set to remain stable or even decline

 

 

sources.

1 Any reference to a specific company or security does not constitute a recommendation to buy, sell hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document. 
2 The Silver Institute (2021)
3 Global Silver Demand Forecasted to Rise to 1.2 Billion Ounces in 2024 | (silverinstitute.org)
4  In years
5  As a % of demand in 2030
6  As a % of CAGR
7  LOIM calculation
8  Based on EU Critical Raw Materials Studies
 

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