Silver Price Update: Q1 2022 in Review

Silver price update: Experts believe sector is set up for growth

Headwinds from rising inflation at the opening of 2022 muted some of the white metal’s early year growth, keeping prices locked below US$24 until the third week of January.

However, positive fundamentals paired with persistent investment demand aided in a push to higher ground on January 20, when values reached US$24.45 for the first time since November 2021.

“It is interesting to note that among the four precious metals, silver enjoys the most favourable supply/demand fundamentals,” the Metals Focus update continues. “After moving to a small deficit in 2021, for the first time in six years, this shortfall is forecast to widen in 2022 on the back of strong industrial demand.”

The positivity also sent the gold-silver ratio tumbling — it hit 75 in late January, its lowest point since November. While the decline was short-lived, as the ratio bumped back to 77 a few days later, analysts at Metals Focus believe the move was indicative of a strengthening silver market.

“The investment case for silver should also remain healthy,” they wrote. “Its dual nature, acting both as a precious metal and an industrial commodity appeals to many investors, as do its green credentials, owing to its use across a number of green energy and mobility applications."

The silver price dropped to below US$22.50 towards the end of January as hopes of a speedy economic recovery were hampered by a rise in COVID-19 variant cases, which led to a selloff in markets.

Silver price update: Semiconductor use to rise as chip shortage eases

Renewed demand from the industrial fabrication segment following COVID-19 closures and disruptions is likely to be further heightened by silver’s growing importance in the clean energy sector.

As the global semiconductor shortage winds down, silver demand in automotive and 5G-related applications is anticipated to increase. This is partially because vehicle electrification requires higher silver loadings per vehicle.

“Moreover, as chip manufacturing bottlenecks are forecast to ease gradually in 2022, the rise in silver demand for these and other electrical and electronic applications is expected to expand,” a February Silver Institute update states. According to the US Department of Commerce, semiconductors contribute as much as US$2.7 trillion to global GDP. Last year’s chip shortage cost the automotive sector roughly US$210 billion in lost revenue.

The worldwide shortfall, which impacted an array of sectors, from cell phones to cars, is believed to have shaved 1 percent off of America’s annual GDP, and it prompted US national security experts to urge Congress to “swiftly pass legislation revitalizing domestic semiconductor manufacturing.”

In response, Congress okayed the bicameral CHIPS for America Act as part of the Bipartisan Infrastructure Act, which will provide over US$50 billion in incentives to accelerate and catalyze domestic chip production.

While this move may help fortify a domestic supply chain, CPM Group Managing Partner Jeffrey Christian doesn’t see it having a material impact on silver demand. “CPM views this proposed subsidy as largely meaningless to future silver and other metals demand from the semiconductor industry,” he told INN.

As the expert pointed out, semiconductor prices have been on an upward trajectory since 2009 and don’t appear to be slowing. In February, sales topped US$52.5 billion, a 32.4 percent year-over-year increase.

“In addition to the existing growth, growing industrial nationalism will mean that more countries, and more companies, will be building additional semiconductor manufacturing capacity,” Christian said.

“These trends will push silver use in semiconductors higher," he continued. "The US subsidies will assist these trends, but they will not necessarily be that important to silver and other metal demand in semiconductors, which will rise due to demand growth.”

Silver price update: Solar panel demand expected to stay strong

The solar industry is a well-known consumer of silver, and it's seen significant growth over the last decade. In turn, silver demand from this segment has also climbed — in 2021, the PV sector accounted for 10 percent of all silver consumption, up from 5 percent in 2010, over a decade earlier.

This trend is likely to continue as more countries green their economies and as energy prices remain elevated.

“Rising energy costs will make solar power even more price competitive and attractive, which will boost demand for silver use in solar panels,” Christian commented to INN.

A possible stumbling block is that in the US, the Department of Commerce has launched an investigation aimed at determining whether solar imports from Cambodia, Malaysia, Thailand and Vietnam are circumventing tariffs.

The Solar Energies Industries Association has come out against the move from the US, with President and CEO Abigail Ross Hopper saying in a release, “This investigation is based on a meritless trade case that is hammering the solar industry in real-time and diminishing our efforts as a country to tackle climate change. We urge the administration to expedite this investigation and end this unnecessary roadblock to our clean energy future.”

Current tariffs on solar panel components can be as high as 250 percent.

Although the investigation could be bad news for the solar sector, Christian doesn’t see increased tariffs or regulations negatively impacting the 10 percent of total silver demand PVs account for.

“Mostly (tariffs) merely displace where the panels are manufactured,” he said. “Insofar as tariffs restrict competition and raise costs to consumers of solar panels, the tariffs might slow demand growth in the US.”

Silver price update: Metal’s duality adds tailwinds

The silver price rose throughout February and early March to reach a quarterly high of US$26.40 March 8, largely driven by broad geopolitical and economic uncertainty around the globe.

By month’s end, values had returned to the US$24.81 level. However, with positive fundamentals ahead, the white metal was able to edge higher to open the second quarter of the year.

The war in Ukraine is another key factor right now for the silver market. Potential supply disruptions stemming from sanctions against Russian businesses could remove as much as 3.3 million ounces from the market this year.

“This is not a new development, but instead gathered pace after sanctions were first introduced in 2014,” a March Metals Focus report notes. “However, the new sanctions will cut-off access to foreign-sourced financing, which will make funding project development increasingly difficult.”

The metals consultancy firm also points to uncertainty around semiconductor chip production due to the role Ukraine plays in the global supply chain.

“From a silver standpoint, it is used in automobiles and although difficult to estimate, the auto sector appears to be the second largest end-use, after photovoltaics,” the report continues.

“The use of silver in consumer electronics could also suffer. This market may also face headwinds should inflation remain high, given its impact on disposable incomes.”

Moving forward, the silver price is expected to hold above US$20 for the rest of the year, supported by inflation, uncertainty and negative real yields. As part of its 2022 projections released in December 2021, Metals Focus calls for an average silver price of US$25.72, a 2 percent increase year-over-year.

Conversely, the Silver Institute is taking a more modest stance on silver’s 2022 price performance potential.

“Overall, the 2022 annual average silver price, based on the LBMA silver price, is forecast to be US$24.80, 1 percent lower than 2021’s average price of US$25.14, an historically high annual average,” its February newsletter reads.

As of April 12, an ounce of silver was valued at US$25.59 at 11:30 a.m. EST.