The average price of SMM 1# silver in 2024 rose approximately 30% YoY, supported by rigid PV demand in H1 and market expectations of a US Fed interest rate cut. Meanwhile, the market's capital chain was relatively loose, leading to a significant increase in silver prices. Both supply-demand dynamics and macro sentiment influenced silver prices. In 2023, macro factors had a weaker impact, and silver prices were more affected by industrial supply and demand. However, entering 2024, as the macro market shifted to an interest rate cut environment, futures market investment activity surpassed industrial supply and demand, with macro news exerting a stronger influence on silver prices.
Macro Front: In 2025, the US will remain in an interest rate cut environment, and the US Fed is expected to set interest rates lower than in 2024. Meanwhile, the US president's policies will strengthen the US dollar and weaken precious metals. However, as the correlation between the US dollar and gold may weaken, coupled with currency exchange rate issues, silver prices are likely to fluctuate on the bullish side.
Demand Side: PV demand will continue to grow in 2024, with PV silver usage (production + inventory) at 5,800 mt, up 26% YoY. The increase in silver usage is related to advancements in PV technology conversion, sustained growth in downstream demand, and further strengthening of localisation substitution. Demand for electrical alloys will also rise compared to last year, mainly due to improved orders for electrical alloys in 2024. Downstream home appliance subsidies have encouraged consumers to upgrade appliances, driving related demand for electrical alloys. In the electronics sector, demand is supported by semiconductor-related products. However, as domestic silver supply for semiconductors is skewed towards low and mid-end, the market relies heavily on imports. Additionally, due to cost reduction pressures in the industry chain, the substitution rate with base metals is higher. Other traditional industrial sectors, impacted by high silver prices, are increasingly using base metals as substitutes where performance is not compromised.
Supply Side: Rising silver prices have driven an increase in silver production, with 1# silver production up 9% YoY. At the same time, more silver is entering the supply system. In H1, strong PV demand significantly boosted domestic silver prices, pushing domestic prices above the tax-inclusive prices of imported silver. In June and July, domestic markets uncharacteristically imported silver to supplement domestic demand.
Supply-Demand Balance: At the beginning of 2025, a tight supply-demand balance is expected, with supply slightly exceeding demand. Therefore, from the supply-demand perspective, silver prices in 2025 are expected to show a downward trend.
Given the influence of both macro factors and supply-demand dynamics, the average silver price in 2025 is expected to be similar to that in 2024, with overall prices exhibiting a wide fluctuating trend.
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