Silver Usage Today

Podcast Transcript

Ed Coyne: Hello and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott Asset Management. I’m really excited today to bring on Michael DiRienzo, President and CEO at the Silver Institute. Michael, thank you for joining Sprott Radio.

Michael DiRienzo: Thank you, Ed. I look forward to the opportunity and it's great to see you again.

Ed Coyne: Good to see you. Tell us a bit about the mission statement of the Silver Institute. What is your day-to-day goal?

Michael DiRienzo: What we try to do and what we do, I think quite effectively, is put out information on the market. Whether that be our World Silver Survey or some of our other reports. Just going back to the survey here for a second, it really is the most widely heard, viewed, read, retweeted piece on the silver market on an annual basis. It's been going on since 1990. We put all our World Silver Surveys on our website, so it's not just a current edition.

You can go back to 1990 and look at all these surveys, which have been produced by several firms over the years. These days it's being done by Metals Focus, which is an offshoot of the old GFMS team that was doing it for, I think, 18 years for us. We also put out information on other aspects of the market. For example, this year we'll be putting out a market trend report on bullion stocks, and the mobilization price point where we start drawing those down to meet some of the demand.

We're doing one later this year as well on silver and batteries. There's a lot of chatter out there about how much silver is used in batteries and we want to get to that issue and drill that down. Then later this year, we'll be putting out a report on silver bullion investment, looking at the four key regions in the world that focus on coin and bar sales. We'll also be putting out a report on why institutional investors should invest in silver.

Ed Coyne: Now without spoiling any of those projects, who are some of the four key regions? Let's talk about that first since you brought that up.

Michael DiRienzo: It would be North America, Europe, Asia, and Australia.

Ed Coyne: Got it. Basically the four corners.

Michael DiRienzo: Exactly.

Ed Coyne: You brought up something that's fascinating, which is silver and batteries. Historically, silver has been viewed as a monetary metal or a close cousin to gold as far as how it moves in the market. That seems to be changing. What's your thought on that? Has silver started to move away from gold and away from that monetary metal tag and become more of an industrial metal? What are you seeing out there in the work you're doing?

Michael DiRienzo: I think it's a great point because gold really didn't react to high inflation. It may have to a degree, but it wasn't talked about among precious metals enthusiasts. It wasn't reflected in the gold price with respect to inflation. There were more geopolitical issues and other issues going on with debt and so forth across the globe, and especially here in the U.S., which has propelled the gold price. Gold has about 10%, maybe 7%, uses with respect to industrial demand.

Where on the other hand, silver is well above 50%. A lot of investors like the duality of that silver being a monetary metal and an industrial metal. As time goes by, it is clearly more of an industrial metal than it has been. That's not to say that people don't invest in silver because silver has done quite well this year as a price. The question remains, is it being used as a hedge against geopolitical risk? Is the play more so on the industrial side or is it a combination of both?

Ed Coyne: My guess would probably be a combination. Although you're seeing silver used in just about every newer technology from solar, electronics, auto, medicine, you name it. Which is interesting because if you go back, you said you guys have been doing this since the 90s, silver was always viewed in the photo industry and that was it. Now it's got more usage than ever before. Maybe talk about some of those drivers, how real is solar as relates to the demand of silver? What's going on there? Maybe talk about some of those other points I just mentioned: electronics, the auto industry, and so forth.

Michael DiRienzo: You're absolutely right, it was not that long ago, 10 or 15 years, where silver's use in photography was over 200 million ounces a year. In the early 1990s with the advent of digital photography, that number became lower and lower to the point last year it was about 26.1 million ounces of silver down from 200. What has happened in the meantime?

We like to say that there's not a day goes by where a new scientist or an OEM somebody who's involved in the industrial side of the complex does not come up with a new idea on how to use silver. What has expanded in most recent years, of course, is silver's use in electrical and electronics. In 2023, about 445 million ounces were used in this sector. This year, we project it's going to grow by about 9% to about 485 million ounces per year. The chief consumer in that category is photovoltaics, and it's continuing to grow.

It grew 64% in 2023 and we project it's going to grow another 20% in 2024 from about 193.5 million ounces to roughly 232 million ounces. There is pressure on governments and consumers to reduce the carbon footprint of this world and have less reliance on fossil fuels. It's clearly working, and China is driving that coverage. If you look at China last year with respect to photovoltaic demand, over 90% of global panel shipments came from China last year.

Ed Coyne: Wow.

Michael DiRienzo: The U.S., for example, is also using a lot of photovoltaics (PV) and we think that that number's going to grow here and in Japan. Not just in photovoltaics, but also the electrification of vehicles, the charging stations, the infrastructure surrounding that application. Now, I see EVs are plateauing right now, but it doesn't mean they're not being sold. We've had over a 25% increase in global EV sales in just the last five years.

Silver is a key component. While it's not in the battery, it's used in all the contacts, the relay switches, it operates your infotainment systems, it operates your safety systems, it starts your car, rear window defrosters, and so forth. Ed, it's interesting as these cars become more complex, and as the advent of autonomous driving becomes more universally adopted, you're going to see more and more silver being used in vehicles.

Ed Coyne: You've heard in the past about silver in the medical field. Jewelry was always talked about from silver demand. You don't see that as much anymore because solar's become so popular and the auto industry has been consuming more of it. Any other spaces out there that people should be looking at or paying attention to as it relates to the demand side?

Michael DiRienzo: Silver has been used in health and medicine for thousands and thousands of years. The ancient Venetians used to store their wine and water in silver-lined jugs. They didn't know the reason why, but they did because it killed bacteria, kept the product longer and fresher over a period of time. Today you're seeing silver in hospital rooms, and as a coating in walls on emergency equipment.

Silver bandages helps heal burn victim's wounds faster. It's a natural antibiotic. As antibiotics become over time and with repeated use, less functional for certain individuals, silver is also coming to the rescue. It's a small market size: 10 or 20 million ounces of silver a year. However, if you add in water purification, you get to about 30 or 35 million ounces. Silver plays a key role there.

Ed Coyne: Well, given all this demand, let's shift for a second to the discovery and extraction side, the miners.

Michael DiRienzo: Sure.

Ed Coyne: Given this demand, is it realistic that we can keep up with this or what are we seeing on that side of the ledger?

Michael DiRienzo: It's a question we see an awful lot. For the last three or four years, mine production is not slowing rapidly, but it has decreased over time, including about 1% last year. We had initially called for about another 1% decrease this year. That may even a little bit higher, because what we're facing in these significant mining regions like Mexico and Peru. Not so much China although it is the number two country with respect to overall silver mining. These geopolitical issues are real, and they're confronting this longstanding tradition of mining in these countries.

You factor that in with some labor issues, strike issues, and so forth, and it's becoming a challenge. The mining companies are adapting well in those particular countries. I think that this will level off one day. 1% doesn't sound significant, but if you look back over the course of the last four years, it's gone from 836 to 823 million ounces of newly fresh-mined silver coming to the market. It's an issue, and we have said that when you look at that and overall demand, there's a deficit in the market.

We think the deficit this year is going to increase. We think it's going to be even bigger than it was over the course of the last three successive years of deficits. This year we're looking at about 215 million ounce deficit when you look at mine supply, recycled scrap coming to the market, and overall demand.

Ed Coyne: Can recycle fill that gap? That's including recycling currently in those numbers.

Michael DiRienzo: It does indeed.

Ed Coyne: What's the answer? Does silver just have to go higher then or what happens?

Michael DiRienzo: There has to be a certain price point where the mobilization of these stocks are actually underway, and these stocks have been drawn down. You recall last year or the year before, the overwhelming demand in India for silver to meet not only their industrial side but more importantly their investment side. These stocks were drawn down, and they were sent to India.

That's just the way it is and it's continuing to a smaller degree today, but nonetheless, that's what's happening. I read stories earlier this year where India has imported more silver in the first four months of 2024 than they did in all of calendar year 2023.

Ed Coyne: Wow.

Michael DiRienzo: This phenomenon continues, and there are above ground stocks of silver. We have a great chapter on that very issue in our World Silver Survey, which you can find online. I believe it's chapter 7, and it deals with bullion stocks. Then right after that, we talk about bullion trade.

Ed Coyne: Let's talk a bit about the risk. We spent a fair amount of time talking about demand. We've talked a bit about opportunities. What about the risks? What are some of the things out there that people should maybe be concerned with when they're thinking about allocating to silver to help diversify as you say from an investment standpoint their portfolio? What risk should someone be thinking about or looking out for?

Michael DiRienzo: We have enough silver to meet current demand. The risk, which would be good for the silver price, would be if we start to mobilize these above-ground silver stocks to the point where we're not only in a significant deficit, but we can't meet the demand. It's been plenty written about. The electrification, the green energy economy, and what that means to silver and what it potentially could mean not immediately before or five years down the road.

That is a risk. That's good for silver investors, but it's not so great for those manufacturers. People think that a higher silver price $30, which we are at now, $40, $50, $60 an ounce is a win-win for everybody. It is if you're an investor, but it's not if you're a manufacturer of any product that consumes silver. Back in 2014 and '15 when silver was starting to get some wind behind its backs with respect to solar panels, these companies that manufacture solar panels began their thrifting process, and they continue to thrift today.

The risk there is thrifting in end-use applications, but in that particular instance with respect to solar panels, they've looked at a whole host of other metals. Not even metals to see if they can store that electricity for a longer period of time, as well have those systems operate to the degree they do with silver and they can.

Ed Coyne: What else should investors or potential investors be looking out for or thinking about as they consider silver as part of their potential portfolio?

Michael DiRienzo: Silver has gotten a bad rap over the years. Poor man's gold and all that, and we don't believe that one iota. We have a saying, if copper's the driver of the superhighway, silver is the globe. You need silver for everything. Everything that has an on-and-off switch has silver in it.

Ed Coyne: That's great insight. I know you mentioned it earlier, but for investors and just people who want to be educated on the space, walk us through again the best way to track down you and your work at the Silver Institute. Some of the readings that you would suggest people go to.

Michael DiRienzo: We're at silverinstitute.org. Everything we put out it is free of charge. In some cases, if you want a hard copy of the World Silver Survey, we could charge a nominal price for that. One of the best ways to follow us is to sign up for our information, which will be emailed to you at info@silverinstitute.org, or you can go to our website and click a button, and fill out a form there.

We're also very active on LinkedIn at Silver Institute as well as on X, @silverinstitute. We're constantly putting out information on the market through those social media platforms, but also four, or five, six reports a year on the market, which would be sent to you the moment they're released.

Ed Coyne: Yes, I know. I rely on them for my own personal intel. It's surprising how many people ask me about silver. Without your information, I don't think I would know what I'm talking about. I barely do as it is, but you at least help me get halfway down the aisle, so thank you for that.

Michael DiRienzo: Thank you for keeping us in mind. We are the best source. We're a global source. We've taken on seven new members this year already and those members are very diverse. Our membership is growing. People are excited about silver, and we think we have a good story to tell. That's what we do, and that's how you can follow us.

Ed Coyne: Awesome. Well, Michael, thank you again for making the time to join us today. Once again, my name is Ed Coyne and you're listening to Sprott Radio.