Massive Chinese Solar Build Out And Silver Consumption Surge Is Well Underway

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Includes: SLV
by: Russ Winter

Summary

100 Gigawatts of solar to be built in China by 2020 and in India by 2022.

Although usage is a moving target, silver is the core material.

Silver is in serious price disequilibrium, making planning for these aggressive solar buildout difficult.

A large five year 100 Gigawatt solar build-out in China is gearing up. This of course is barely reported in Western MSM, and really is not mentioned that much in precious metal circles. So, as per usual, I direct you to do your own open source search of "China solar build out" and you can see for yourself. Dozens of plants and projects are getting underway.

This article in Forbes discusses silver usage in solar PV cells. The high-points include:

  • Silver has the highest electrical and thermal conductivity of all metals.
  • Roughly 80 metric tons of silver or approximately 2.8 million ounces of silver are needed to generate approximately 1 Gigawatt of solar power.

Again do your own research on usage (open source: silver for solar use). I used 236 Mt per gigawatt in my article yesterday. Some of this is a function of cheaper alloys being utilized. The formulas are often proprietary, but silver is the core material. And with silver currently dirt cheap, there is little reason, at least for now, to cut corners. So I think my number may be closer.

The point is that the whole scenario is being largely ignored. I am not an engineer or solar expert so can only help start the discussion. In the words of Francis Urquhart in House of Cards: "You might very well think that; I couldn't possibly comment". One can model this various ways.

Your starting point is 27000 Mt of annual mined production, almost all money losing and thus not sustainable. Breakeven even after the big drop in energy costs is around $17.00.

Also keep in mind that China is seeking to spread this technology beyond its borders and throughout the Silk Road. The lower band shown in orange and red across this region is prime, and in particular India. Indeed that country is gearing up as well and is only a bit behind China in time line. India also has a goal of 100 gigawatts by 2022. A 750 megawatt plant is being constructed and will start up in the summer of 2016. A huge solar project is underway in Iran as well. And a 900 megawatt plant is getting underway in sun drenched Pakistan as well.

I see the real issue here as a lack of silver. The destruction of price discovery by paper trading has warped the market. The price today in no way reflects the scarcity. This will make planning this build-out very difficult and little preparation is currently being made for replacing depleting mineable silver reserves, let alone new supply. $20 is barely equilibrium in a declining demand market.

In fact because of the importance of silver to the solar industrial use, India in particular would be wise to direct that country age old precious metal investment demand towards gold. $15 silver has set up a hoarder boom in the West and East that mints can't keep up with.

The Shanghai Exchange attempted to round up silver inventory after it was depleted late last year. The build peaked on June 15 at 394 Mt, and as the aforementioned projects geared up we see silver stocks drawn down to 261 Mt on last Friday. This can be tracked weekly here. If you eyeball various other metals you will see the story of glutted stocks is a fiction, a fabrication.

The stated goal of China alone is 10 gigawatts for the 2H. If we take the Forbes article on usage, which I think is too conservative, China will need 800 Mt of silver for PV manufacture. More likely it closer to 1500-2000 Mt.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.