A Silver Shortage Is Looming as Decarbonization Gathers Steam

A significant chunk of the planet is keen on reducing its carbon footprint by investing in greener, more sustainable energy sources. This move is expected to put significant pressure on metals such as copper, which will undoubtedly be used to build infrastructure for renewable energy, including wind turbines and photovoltaic cells for solar panels.

Copper already plays a major role in several industries across the globe, with sectors such as power generation, electronic product manufacturing and building construction cumulatively using more than 20 million tons of copper per year.

Another metal that is expected to be in short supply amid global decarbonization efforts is silver. While the precious metal has often acted as a store of value that protects investors when political and economic conditions falter, it derives nearly 60% of its value from industrial demand.

This means that 60% of the global silver production goes toward industrial applications such as electronics and solar while 40% goes to investing. This is primarily because silver has the highest thermal and electrical conductivity of all metals, making it ideally suited for solar panels.

More specifically, solar panel production consumes 100 million ounces of silver every year, and this number is projected to increase as countries step up their green-energy and electrification efforts. This pressure will be especially caused by electric vehicle battery production as EVs consume two times more silver compared to regular gas-powered cars.

A recent report from the Silver Institute said that silver demand in the automotive sector will increase to 88Moz over the next five years as the sector shifts from internal combustion engine-powered vehicles to electric cars and buses.

Silver is already seeing a crunch in supply. Holdings at the London Bullion Market Association (LMBA) as well as the Comex have been decreasing in past months, with the silver inventories at the LMBA falling for 10 consecutive months to sit at around 27,100 tons. Registered silver inventories at the Comex hit a five-year low at only 1,186 tons.

In a recent Bullion Star article, precious metal analyst Ronan Manly said that the “relentless hemorrhaging” of one of the largest silver stockpiles on the globe was already happening. Manly noted in the September 12 article that silver inventories at the LMBA had fallen for several straight months and that registered silver holdings on COMEX in New York were down by almost 70%.

As countries step up their decarbonization efforts, experts expect the shortage in silver supply to expand further and push stocks of miners such as Hecla Mining Company (NYSE: HL) much higher than they currently are.

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