Solar Power Could Become Major Source of Silver Demand

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"Solar industry could support silver as investors take a backseat."

Solar panels could become a significant source of demand for silver, say analysts with Barclays Capital. Based on the bank's estimate of global polysilicon solar cell shipments, Barclays estimates over 800 metric tons of silver was used in 2009, around 8% of silver industrial demand and 4% of silver supply.

It had the capacity to almost double last year, Barclays says. "By 2012, silver usage in solar panels could reach 2,000 tons, around 7% of silver output." However, cost could be a significant factor determining the demand, Barclays cautions.

Based on 2009 and 2010 cost per watt of polysilicon cells, the cost of silver per panel is around 8% at current prices. Should silver fall to last year's low, this cost share falls to 4% to 5%, Barclays says. But if silver hits $48, the share would rise to 13% to 15%. Solar panels will not drive silver demand in the short term, Barclays says.

However, in the long term, with China and India pledging to increase solar capacity, "the solar industry could provide industrial support for prices—albeit below current levels—as investment demand takes a backseat."

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