Summary of Key Points
The price of silver has plummeted by more than 50% in less than six months, following a surge of over 230% in just over half a year. This rollercoaster market has presented a stark contrast for companies that use silver, such as those in the photovoltaic industry: during periods of high prices, they faced significant financial pressure, shortages of raw materials, and difficulties in fulfilling contracts; when prices dropped, they had to deal with the risk of inventory depreciation. At the same time, the high cost of silver has accelerated the development of silver-reducing or silver-free technologies (such as copper-clad silver and electroplated copper), with some of these technologies expected to be implemented in the second half of this year. In the short term, silver prices are unlikely to show a clear trend, while the photovoltaic industry remains promising in the long run, though it must endure a period of adjustment.
I. Silver Prices: A Wild Ride – Down 50% in Half a Year, Up More Than Doubled Previously
From June last year to January this year, silver prices soared: London silver rose from $34.73 per ounce to $121.647 (an increase of 230%), and domestic Shanghai silver futures jumped from 8,437 yuan per kilogram to 32,382 yuan (an increase of nearly threefold). However, prices began to plummet on January 30th, falling to $56 per ounce by July 16th (a decrease of over 50%) for London silver and to 13,916 yuan per kilogram for Shanghai silver futures. These extreme fluctuations have put silver-using companies in a very challenging position.
II. The Troubles Faced by Companies During the Silver Price Surge
During the period of high silver prices, companies that use silver, especially those producing silver paste, faced three major issues:
1. Severe Financial Pressure: They had to pay for silver in cash and on delivery, but customers would take 45-60 days to make payments, leaving them with poor cash flow.
2. Shortage of Raw Materials: A large amount of silver was bought by the Shenzhen Shuibei market for investment, leading to a critical shortage of silver for industrial use.
3. High Contractual Risks: The significant price fluctuations could result in breaches of agreements between suppliers and buyers.
Companies found various ways to cope:
- Juhé Materials: They purchased silver at high prices and used futures deliveries (obtaining physical silver from the futures market, which was cheaper than buying it directly) as well as over-the-counter options to secure silver supplies for their upstream partners.
- Zhongwei Xinyin: They adopted a "back-to-back locking" strategy – immediately locking in raw material purchases when customers placed orders, transferring price risks. They also used futures deliveries to buy silver, ensuring both safety and cost-effectiveness.
III. The New Challenges After the Silver Price Drop: Inventory Depreciation
With falling silver prices, the cost of purchasing raw materials decreased, but new problems emerged:
1. Inventory Reduction: Silver purchased at high prices and finished products became less valuable, leading to asset depreciation.
2. Customer Negotiations: Downstream customers might demand renegotiated prices or delayed deliveries, affecting company profits.
Companies responded with various hedging strategies:
- Hedging: For example, Juhé Materials conducted reverse transactions in the futures market – buying silver in the spot market and selling an equal amount in the futures market to offset losses if prices fell.
- Silver Leasing: They leased silver instead of purchasing it to reduce capital occupation and storage costs.
- Back-to-Back Hedging: Zhongwei Xinyin carefully matched their inventory with short positions in the futures market, remaining calm regardless of price changes.
IV. The Forced Technological Revolution: Accelerated Adoption of Silver-Reducing Technologies
The high cost of silver became unbearable for the photovoltaic industry, as silver paste costs account for a significant portion of component costs (up to 90%). The industry is exploring four alternative solutions: copper-clad silver, electroplated copper, copper paste, and aluminum paste, with 2026 being seen as the "year of silver-free technology." Some of these technologies (such as using pure copper or copper-clad silver on the back of batteries) are expected to be implemented in the second half of this year. However, due to technical barriers, silver will still be needed for front-side electrodes in the short term.
- Impact: While current alternative technologies have limited impact on silver demand, they will reduce the overall use of silver over the long term, driving the industry towards innovation.
V. The Future Outlook
- Silver Prices: It is unlikely that silver prices will show a clear trend in the short term, with Shanghai silver futures likely to fluctuate between 13,000 and 15,000 yuan per kilogram, influenced by geopolitical factors (such as the US-Iran situation) and Federal Reserve policies.
- Photovoltaic Industry: There is temporary overcapacity (rapid domestic production growth and weak overseas demand), but the industry has a promising long-term outlook, driven by trends such as the integration of solar energy storage and distributed photovoltaics. Companies need to focus on cost stabilization through hedging, endure the adjustment period, and invest in research and development of silver-reducing technologies to emerge stronger when the market recovers.
This news highlights a simple truth: price fluctuations are a catalyst for technological progress and help identify companies that can effectively manage risks. For anyone interested in industry development, it is clear that cost and technology are fundamental factors that cannot be ignored.