Solar Panels: Not All of China's Silver is the Same

Intro

This is a multi-part Silver piece exploring the industrial supply/demand dynamics in China with a focus on that nation’s burgeoning Solar Panel manufacturing. It is co-authored and a collaborative effort between VBL's Ghost and Bai Xiaojun. Previous collaboration can be found in Peak China Silver: The Looming Extinction Event

Sections:

1. The BOA Silver Report
2. China Demand
3. Indian Demand
4. New Questions Raised
5. Industrial Silver Uniformity
6. Heavy Silver
7. Bottom Line: Not All Silver is The Same

The BOA Silver Report

A recent BOA Metals report correctly stated China had been a large importer of Silver for much of recent history.  It also noted for all of 2022 and the first part of 2023 China actually turned net exporter.The question thus became, is this a new downward demand trend or is this an aberration within an existing trend? No explanations in the report were given for the change in China behavior, yet it was mentioned.

China, Net Silver Importer, turns exporter…

CHINA DEMAND DROPS

Our initial observations cited a combination of forces converging in 2022; Specifically China’s slowing economy  combined with spiking foreign investment demand flipped the import/export metric The China slowdown part seemed self-explanatory, and is further evidenced by coming stimulus measures to get things on track again.

SocGen details China’s stimulus choices…

With regard to foreign demand, Indian buying had gone ballistic in 2022 obliterating not just their previous 5 year demand average, but easily eclipsing the high of the last 5 years by more than 50%.

Indian Demand Ballistic in 2022, Cools in 2023…

We initially concluded that between India’s 2022 demand-pull, and China’s economic slowdown, foreign demand for Chinese silver outweighed domestic industrial demand. Thus China sold some Silver. We therefore put a pin in that concern pending demand changes post a China recovery. But more questions arose.

New Questions Raised

There were two more questions that followed. First, in this Cold War 2.0 era, data exchange between global super powers has to be viewed skeptically at best. There is nothing that can be done about that unfortunately.

The more important one was not commonly asked by investors but imperative for industrial users. Not all Silver is the same. There are differing qualities of Silver, and while these differences may not be very relevant in jewelry or cosmetic use, they are extremely important in product yield applications industrially. Put another way, you cannot cheat electrical conductivity. Here is some first hand history on that.

Industrial Silver Uniformity

If you take delivery of Silver bars from an exchange like Comex, all the bars have satisfied their criteria for acceptance at some point in time. But some bars are still better than others. Within the minimum specifications, refinery quality does matter. A Comex bar from Englehard is not a bar from (now defunct) Spiral for example.

If you take delivery of a bar, non-silver impurities within those bars vary from refiner to refiner. It is important to note you are charged only for true Silver weight, not impurities at delivery. However, if you need uniform purity for industrial use, another refining process may be needed to filter those out. That costs money and time.

Heavy Silver

When you take delivery of a 1000 ounce bar priced at $24.00 per ounce and the total bill paid comes out to $23,500— you didn’t get a deal, you merely weren’t charged for impurities. How accurate those impurity measurements were back when it was assayed is something else altogether Once upon a time, when a big player took delivery on Comex, they would sometimes specify brands they did not want. Depending on how good a client they were, they got their wish.

These bar quality differentials persisted for years due to bars from firms no longer in compliance but still being in inventory. So when an industrial player took delivery, he said “no heavy silver please” to minimize his additional refining costs.

Bottom Line: Not All Silver is The Same

The takeaway hopefully is this: Not all Silver is the same. We assume BOA’s numbers are accurate. Still, what type of silver is being measured? What we shall see next is that there are many types of Silver. Not just heavy and light as described above. But various levels of refinement as well. For example, a ton of Silver ore is worth less than a ton of Silver paste.

Which brings us back to China, their import/export situation and their industrial demand for Solar panel manufacturing. The point is as China’s industry envelops the value-added part of the supply chain, the raw import/export numbers matter that much less. The notional value matters that much more. Different points on supply chains have differing multipliers.

SIDEBAR: This is all part and parcel of what the BRICS have stated they want more of repeatedly. They are no longer content with just selling raw materials that the west adds value to and sells. They want to be part of the value-added chain. Why? Because that is where the better profits are. The G7 should have been taking them at their word for the last decade and partnered better with them. Instead, we’ve created powerful competition

As Bai corresponded with us last week: Whether Silver is being imported or exported into China is kind of like asking the blind guy what an elephant looks like while he’s holding the tail. Not all silver is the same. It depends on in what part of the supply-chain you handle it.

• Next Week: We Dissect China’s Solar Supply Chain

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