Silver prices will see steady support from EV, solar in 2024, could spike with industrial rebound – Bank of America

(Kitco News) – Silver prices will benefit from the growing demand for EVs and solar panels in 2024, and could also get a boost from a potential rebound in industrial demand, according to metals strategists at Bank of America.

In their recently published Metals and Mining Outlook For 2024, the BofA analysts said that several of the key factors that supported prices this year in an otherwise weak macro environment should also carry over into 2024.

“1) green spending is increasingly offsetting weakness in the traditional economy; and 2) supply growth has generally been underdue,” they wrote. “While the start of 2024 may be challenging, if those trends are accompanied by 3) a wider economic rebound, then mined commodities may push higher again, potentially also supported by 4) a weaker USD/ end to the hiking cycle, along [with] 5) an end to destocking.”

The analysts said that silver prices have found solid support above $20/oz, but have struggled to move higher despite limited output from miners and growing demand from green technologies.

“This has been heavily influenced by weak industrial production and a lack of investor interest globally,” they said. “However, if the continued focus on the energy transition is accompanied by stronger global growth, silver prices should push higher.”

The BofA analysts said that silver prices have been supported by solid fundamentals, although many trades are over-the-counter (OTC) which reduces visibility. “But it is worth noting that above-ground-stocks, especially at storage sites linked to the Chicago Mercantile Exchange (CME) and London Bullion Market Association (LBMA), have consistently failed,” they said.

When assessing the state of the silver market, the BofA analysts said they focus on three key areas: mine supply, traditional industrial demand, and green demand.

Regarding mine supply, “in contrast to gold, a much larger share of silver production is consumed, rather than put into storage,” they said. “This means that, similar to the base metals, prices of the white metal tend to be driven by market balances.”

They noted that mining supply remains well below all-time highs, and the latest guidance issued by the largest silver producers indicates that output will not return to those levels any time soon.

“[S]ustained silver price declines 10 years ago ultimately prompted production cuts,” they said. “These curtailments have helped to rebalance the market, laying the foundations for the price increases thereafter. Exhibit 85 takes this a step further, comparing silver production from the miners covered by our colleagues in equity research with total output.”

The analysts wrote that the data suggests supply will remain underdue in 2024. “This is also linked to CAPEX discipline in recent years,” they said. “In the end, the message is always the same: no investment, no production.”

Turning to the demand picture, they noted that industrial buying “is often linked to the strength of economic growth. Indeed, silver tends to outperform gold when industrial activity accelerates.”

The analysts said that “silver usage from the traditional industrial users has been subdued amid economic dislocations from Covid” which has continued through 2023. “Indeed, silver imports from many countries are still at disappointingly low levels,” they said. “Silver purchases from Japan and the US have been hovering at the lower end of the historical ranges. The picture has been similar in China, which has remained a small net exporter of silver in recent months.”

India has been the bright spot in global silver demand in 2023, “purchasing record volumes of the precious metal over the summer,” they said. “Among other things, this reflected pent-up demand especially for jewelry post Covid, which was then exacerbated by restocking through the entire supply chain. That said, imports have returned to longer-term ranges of late.”

Finally, the BofA analysts said the green tech sector is becoming increasingly important for the silver market, with EV penetration rates projected to rise above 40% by 2030, while the white metal is heavily used in solar applications.

“While this is supportive of silver offtake, there are caveats because panel manufacturers have been 1) reducing the silver content in panels” which may reverse in the next generation of photovoltaics, “at the same time as 2) solar panels have become more efficient , so fewer installations are necessary.”

“As such, aggregate silver purchases from the green economy will likely trend higher in the coming years, accounting for 22% of total silver demand by 2030E, from 18% in 2022,” they said.

The analysts also looked at investment demand, where they see investors remaining on the sidelines.

“Physically backed ETFs have made it easy for consumers to access the silver market,” they wrote. “Not surprisingly, these vehicles hold 748moz of assets, equivalent to around 88% of metal held in LBMA warehouses.”

The analysts noted that investors have often been the marginal price drivers. “Yet confidence in the white metal took a hit in the past decade as bullish pitches around ‘promising’ applications, like usage in medical bandages, never really materialized,” they said. “That said, production cuts, along with increased demand from EVs and solar panels, have rebalanced the silver market, so prices are now finding support, even without non-commercial demand.”

They pointed out that assets under management (AUM) for physically backed ETFs have been declining since Q3 2022. “Yet with fundamentals strengthening, there is scope for increased investor buying, which may then provide additional momentum to silver prices.”

Silver has seen a strong run-up in price since last week, with spot prices rising from $23,668 per ounce on the morning of Nov. 24 to a high of $25,197 on the evening of the 28th.

Spot silver continues to hold above $25 at the time of writing, last trading at $25,072.