Silver Powering 20 Million Homes as Supply Surplus Subsides: Commodities

Record industrial demand for silver and resurging investor interest is diminishing a supply surplus, driving the metal used in everything from solar panels to batteries into its best start to a year in almost three decades. Manufacturers will use 15,415 metric tons, 2.5 percent more than in 2011 and reducing the glut by 41 percent to 3,297 tons, Barclays Capital estimates. Investors may buy 2,000 tons through exchange-traded products, after selling 1,300 tons last year, Morgan Stanley predicts. Prices will average $37.50 an ounce in the fourth quarter, 11 percent more than now, the median estimate in a Bloomberg survey of 13 analysts shows. The metal rallied 25 percent since closing at an 11-month low in December, entering a bull market on mounting confidence that another global recession will be avoided even as the World Bank andInternational Monetary Fund cut their growth forecasts. Prices had plunged 44 percent in eight months, making it the most volatile of any metal tracked by Bloomberg, as expansion slowed from Europe toChina, crimping demand for commodities.

“Silver got hammered and now we’re into a phase where it will do quite well,” said Dan Smith, an analyst at Standard Chartered Plc in London, and the second-most accurate price forecaster tracked by Bloomberg Rankings in the past eight quarters. “Appeal comes from its widespread use in both industry and investment. I think it’s relatively cheap.” Silver may still be cheap relative to gold, with a price ratio of 51.5, down from 57.4 in December. It averaged 32.4 in 1980, when silver reached a record $50.35 in New York trading. Nelson and William Hunt of Dallas were convicted eight years later of conspiracy for attempting to manipulate prices and were ordered to pay $130 million. In inflation-adjusted terms, that peak would be equal to $138.31 as of last year, according to a calculator from the Federal Reserve Bank of Minneapolis. Crystalline silicon solar panels use as much as 0.12 grams of silver per watt, and as much as 40 grams go into a 32-inch plasma television, according to VM Group, a London-based research company. Electronic-equipment manufacturing will expand 5 percent this year, according to Los Altos, California-based researcher Henderson Ventures in a December report. “Silver is a hybrid,” said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto and the most accurate forecaster tracked by Bloomberg Rankings in the past eight quarters. “It benefits from being precious. Later on in the year we’re going to see a bit of a recovery in industrial demand.”

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