Worst may be behind silver price – BoA Merrill Lynch

Apr 20, 2015 - 12:52 PM GMT
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The worst may be over for the silver price, Bank of America Merrill Lynch Global Research said, though the metal is unlikely to break higher from recent ranges.

Industrial demand has been poor and subdued economic activity in the wake of the financial crisis has had a collateral impact on the metal, it said in a report.

Silver is down nearly 70 percent on the all-time high it hit in 2011 at $49.81 per ounce.

But China’s market potential coupled with expansion plans that include heavy use of solar energy may provide upward impetus

Large volumes of silver are used in photovoltaic technology to generate solar power. While estimations differ, around 3 million ounces of silver are required to generate around 1 gigawatt of solar power.

The bank remains a believer over the longer term in “China’s market potential, as solar remains a key element of the nation’s 13th 5-year plan”, it said.

While installations are expected to fall short of the 14-gigawatt target this year, BoA ML said, pragmatic steps taken in the second half of last year and the PBoC’s rate cut in November “should help bridge the disconnect between ambitious top-level targets and evolving financing markets and policy measures”, it added.

The policy changes include an increase in eligible distributed generation (GF) project size to 20 megawatts from six megawatts previously and more defined industry consolidation targets.

By 2018, China will install 15 gigawatts of solar energy, equating to demand for millions of ounces of silver, the bank estimated. Energy goals under consideration for 2020 include 100 gigawatts of installed solar capacity.

But while weakness in industrial demand has exacerbated a lack of investor demand, the increase in the photovoltaics area couple lead to a slight increase on the investor side, it added.

“This suggests that the worst may be over for the silver market, although the metal is unlikely to break out of recent price ranges to the upside,” BoA ML said.

Back in December, the bank forecast silver to average $18.18 per ounce in 2015. At the end of the third quarter, the bank expects the metal to average $17.50 followed by $19.50 in the fourth quarter.

(Editing by Mark Shaw)