With one of the largest silver and indium resources in the world, South American Silver has the unique ability to offer investors exposure to the rapidly growing market for a range of high technology applications using indium and silver as key components.
Indium
Indium is a rare, soft metal with unique electrical and optical properties, chemically similar to aluminium and gallium. The lustrous metal is produced mainly from residues generated during zinc ore processing, but is also found in ores of silver. This high-tech metal has a myriad of uses; however its primary commercial application is in the form of indium tin oxide (ITO) as a thin film electrical conductor for flat panel displays (FPDs), high efficiency thin film solar panels and in high-efficiency, long life LED lights. With the rapidly growing market for flat panel and touch screen technology along with alternative energy and LED lighting markets, indium is fast becoming an essential high-tech metal.
Supply
A critical element of indium supply stocks will be the ability to identify new sources of supply to meet rapidly increasing demand. Currently, indium has one of the scarcest levels of reserves vs. current consumption with only 5-10 years of supply at current demand levels. Indium was recently highlighted in a UN report on strategic metals as potentially subject to supply shortages due to low primary production levels, low recycling rates and rapid growth in demand. Since indium is mainly produced as a byproduct of zinc smelting, supply of the high-technology metal is largely dependent on zinc prices and production levels. Weak zinc prices typically inhibit zinc production, resulting in a concurrent reduction in indium production which could spur future competition for the indium necessary for so many emerging high-tech applications. In addition with the global zinc market only growing on average at about 1-3% per year the ability of that market to solely supply the estimated 15-20% annual growth of the indium market is doubtful by itself.
Demand
The rapid growth in global indium usage is a result of its prevalence as an essential component in many emerging high-technology applications due to its unique electrical and optical properties. Flat panel televisions and computer monitors, touch screens, smart phones, thin film solar technology and high efficiency LED lighting all require the use of indium. Semiconductors and the next generation of solar panels with higher power efficiency may also require the use of indium in their manufacturing.
The world demand for indium, which continues to grow rapidly, has more than doubled in the past several years and has increased more than 10 fold over the past decade. Over the past five years, the price per kilogram of indium has ranged between $300-$400/kg to over $1000/kg. With the accelerating demand for the high-tech metal and limited production growth capacity from by-product zinc refining, many analysts predict significantly higher future indium prices will be needed to stimulate new sources of indium production.
Flat Panel Displays
The largest primary demand for indium (which consumes approximately 70% of the global indium supply) is for flat panel displays (FPDs). FPDs include liquid crystal displays (LCDs), organic light emitting diode displays (OLED), plasma displays and touch-screens. The increasing popularity of these FPD devices, particularly in the rapidly growing consumer market for items such as the iPhone and other touch screen products, has resulted in dramatic growth in global demand for indium. Indium, when processed as an oxide, becomes an optically transparent, electrical conductor generally in the form of indium-tin-oxide (ITO). Due to its transparency, low melting point, uniformity, fast etching time and longevity, ITO is ideal for use in FPD devices.
Currently, about one billion products manufactured per year contain indium, chiefly ITO in FPD technology. Demand for indium has grown as a result of the increasing popularity of these FPDs for computer monitors, televisions, touch screens and various handheld devices. The LCD Association reported that in 2004, less than 10 million LCDs were sold globally. That number jumped to more than 105 million in 2008.
Indium is a component of every LCD screen manufactured today including lap top computers, flat panel monitors, flat panel televisions, cell phones, PDAs, digital cameras, clocks, watches, picture frames, GPS receivers, and touch screen devices. Along with the surge in demand for LCD screens, the USGS reports that consumption is trending toward increasingly larger displays, which require more ITO per unit. NanoMarket LC predicts the market for ITO to grow from $3.2 billion in 2009 to as much as $10.6 billion by 2016.
As the quality of LCD televisions improves and the devices become less expensive, the number of units sold annually by 2012 could reach 200 million. A December 2009 press release by DisplaySearch suggested that this number is relatively conservative, forecasting shipments of 140.5 million units in 2009 and 171 million units in 2010, based on surging demand and declining prices for the devices in China, Western Europe, and North America.
Source: Displaybank in LCD TV Association "LCD TV Matters”-Volume 3, Issue 2, February 2010
Solar Energy
Further demand growth for indium is expected to result as many companies commence large-scale manufacturing of high-efficiency thin film solar panels which use indium as a key semiconductor material. Sources at Indium Corporation predict demand for indium in thin-film CIGS solar cells could increase from current global consumption rates of 30 to 35t/year to more than 200t/year by 2016. Indium Corp. also predicts that CIGS photovoltaic production will experience a compound annual growth rate of 185%.
Because CIGS thin film is lightweight, can be applied to uneven surfaces, is flexible enough to be rolled up when not in use and shows great promise for achieving low-cost high-energy conversion efficiencies, it is an ideal compound for the sustainable energy industry and indium is becoming an increasingly critical raw material in solar energy technology. In fact, the United States’ Renewable Energy Laboratory claims that in order to produce 20 Gigawatts of solar power by the year 2050, the US will require 400 metric tons of indium per year for the production of photovoltaic modules and systems alone. In a recently released report entitled, "Materials Markets for Thin-Film and Organic Photovoltaics,” NanoMarkets estimated the market opportunity for materials used in CIGS solar technology will grow from $193.2 million in 2008, to $465.2 million in 2010, to as much as $1.11 billion by 2015.
Another report released by NanoMarkets titled "Indium Markets for Photovoltaics,” estimates that indium consumption by the Photovoltaic industry will grow ten-fold over the next eight years from 20 metric tons to more than 228 metric tons in 2016.
LED Lighting
A light-emitting diode (LED) is an indium-based semiconductor device that emits visible or infrared light reactions. LEDs, which offer lower energy consumption, longer lifespan, smaller size, faster switching, and greater durability and reliability than traditional incandescent lights, have a whole host of applications that go beyond general illumination including digital camera flash, full-motion video signs, automotive dashboard lighting, traffic signals, cell phone backlighting, and LCD backlighting in TVs, handheld devices and computer monitors. According to the China Market Intelligence Center, LED revenue will grow to reach US$14.3 billion by 2013, up from US$6.7 in 2008, and US$7.4 billion in 2009. Legislation to ban the use of incandescent light in favour of the more energy-efficient LED lighting is increasing around the world creating an even more swift adoption of LEDs in mainstream illumination. As consumers become more aware of the power savings and long life benefits of solid-state LED lights, and as the cost differential continues to narrow, the market penetration of LEDs in residential dwellings and commercial offices is expected to deepen considerably.
Source: Strategies Unlimited, August 2009
LED LCD TVs
The next generation of LCD TVs use LED backlighting and, according to Metal-Pages Ltd., will soon dominate the LCD market with a 56% share by 2011. DisplaySearch predicts the consumption of LED LCD TVs, which can be made smaller, thinner and, according to some manufacturers, are more efficient than their CCFL lit counterparts, will to grow from less than 3.0% penetration in 2009 to 69.1% by 2013.
Other Uses
According to the USGS, about 2% of indium produced is used to make electrical components such as in infrared detectors, high-speed transistors, and photovoltaic devices for the solar energy industry. An additional 13% is consumed by low-temperature alloys, solders, and compounds.
Due to its relatively low melting point, when alloyed with bismuth, cadmium, lead or tin, indium alloys are often used to grip diverse objects, such as eyeglass lenses or turbine blades while they are being worked on. The alloy can then be melted away at low heat with no damage to the primary object. This feature also makes indium ideal as a fusible element in safety devices such as indoor fire sprinkler systems.
Indium is used in diagnostic image testing which displays the distribution of leukocytes in the body and can be used in specific anatomic regions such as the prostate for detecting infection, inflammation and cancer.
Indium is also widely used in fiber optics, energy efficient windows, de-misting/de-icing coating for aircraft and automobile windshields, heads-up displays, specialized solders, specialized and transparent semiconductors, dentistry and jewellery, and nuclear control rods.
Potential applications for indium are currently under investigation such as advanced semiconductors, more advanced ITO coatings for flat glass and solar cells, additional applications for lasers in telecommunications, new consumer electronic products, and as a substitute for mercury in alkaline batteries.
Silver
Silver is a lustrous white metal with the chemical symbol Ag and atomic number 47. Though it is widely recognized for its use as a monetary metal and in jewellery, it also has substantial and growing industrial applications which make up more than 70% of the market and make silver more of a hybrid precious and industrial metal.
The shiny metal occurs naturally as an alloy with gold and often within other minerals containing zinc and lead and is commonly produced a by-product of copper, lead and zinc refining.
In 2010, the top silver producing countries were Peru, Mexico, China, Australia, and Bolivia.
Silver has unique properties that include its strength, malleability and ductility, its electrical and thermal conductivity, its sensitivity to and high reflectance of light and its reactivity which is the basis for its use in catalysts. Silver has the highest electrical and thermal conductivity of any metal and thus is frequently used in critical electrical contacts and conductors. Silver also has many optical uses such as in mirrors, solar reflectors, and CD/DVDs. Increasingly, silver is being used as a bactericide for medical and disinfecting treatments and in water purification systems. This versatility means that there are few alternative metals in most applications, particularly in high-tech applications in which reliability, precision and safety are critical. Based on the rapid increase in industrial usage, some analysts are predicting a 4x growth in industrial use of silver over current levels within the next 10 years.
A Precious Metal
As a precious metal silver, like gold, is considered to be a "store of value” investment and has a long history as a monetary metal. Since 2005, it has had a 95% correlation to the movement in gold, but is currently at the low end of its value range compared to historical ratios with the price of gold which have ranged from a low of 80 to 1 to a high of 15 to 1. In general, silver mirrors the movements in gold price but often at an amplified percentage basis due to its smaller market and lower above ground supply. Recent years have seen consistent increases in investor demand for silver in the form of exchange traded funds (ETF’s), bars and coins. Increased investment demand is often one of the most important driving factors during periods of increasing silver prices.
An Industrial Metal
As an industrial metal, silver tends to reflect fluctuations in the world economy. During the period from 2002 to 2007 we saw year-on-year growth of industrial demand for silver. During the economic downturn of 2008 and 2009 industrial silver demand fell off, but total demand was bolstered to relatively stable levels with the help of a dramatic increase in investment demand. With a recovering world economy, particularly in the developing world, industrial demand appears set to resume its previous growth trend. This is supported by many newly developing high-tech uses for silver. This potential for increased industrial demand combined with high levels of investment demand support a strong pricing environment for silver going forward with a flat to falling total supply trend.
The main growth areas for the industrial use of silver over the past decade have predominately been in electronics, renewable energy and health sectors, all of which rely on the properties of the metal as a catalyst, for storing or conducting electricity and as a biocide. It is from these broad areas of development that novel areas of silver demand are likely to emerge on a commercial scale.
Areas of Future Growth in Silver Usage
Alternative Energy
Due to growing global demand for renewable energy sources, the use of silver in the production of Photo Voltaics has experienced a dramatic increase. Photo Voltaics are arrays of cells containing material that converts solar radiation into direct current electricity.
Over the last decade, the Photo Voltaic (PV) industry has emerged as a significant industrial user of silver, growing at an exponential rate as science has raced to replace the world’s dependency on burning fossil fuels to generate energy. GFMS estimate silver demand for this sector grew 30% in 2009 and, with PV cell production regarded as a safe, clean, efficient means of future power generation with very low environmental impact, it is expected to be a major segment of silver demand in future years with potential for a 10x increase over the next several years.
Auto Industry
The auto industry is also currently doing research on the use of silver in fuel cells and catalysts to substitute its much more expensive counterpart, platinum. Work to develop a catalytic converter for diesel engines using silver could become a very significant new market.
Battery Technology
Another area that has gained momentum in the last few years has been the development of silver oxide batteries. While the use of silver in batteries is not new, the most common being the button shaped silver oxide cell, it is the area of high-performance silver-zinc rechargeable batteries that is showing considerably potential for use in laptops, mobile devices and importantly the automotive industry, which is expected to expand rapidly. Modern vehicles use silver in a myriad of applications such as switches, window de-misters, and within electronics such as GPS navigation systems and are regarded as areas of exponential growth, particularly given the probable introduction of silver-zinc batteries into the emerging electric car market.
Medical
Silver has historically been recognized as a substance useful for its anti-bacterial qualities and for treating ailments. In recent years these health benefits have been proven in the laboratory and are now emerging in mainstream applications for both the industrial and consumer markets. Silver products used in the medical field, such as bandages impregnated with silver sulfadiazine to treats burns and injuries, have been around for a number of years and are now widely available from the local pharmacy.
Other medical developments, especially in the area of nano-technology, may contribute to a substantial increase in demand for silver as penetration by nano-technology gains momentum. Moreover, silver-impregnated medical instruments such as intravascular catheters or endotracheal tubes have proven to reduce infection, opening the door for a vast array of applications. Indeed, there are few areas in the medical field where the use of silver cannot be beneficial.
Functional paints and coatings (including glass and plastics) containing silver are also able to reduce the growth of unwanted bacteria and other micro-organisms where a high level of hygiene is critical. In the household environment, demand for silver is also expected to rise as new anti-bacterial uses are being trialed and introduced. Several ranges of clothing are currently available using anti-microbial silver and odor absorbing carbon nano-particles, as are washers and dryers based on the same principles. Air cleaners, air conditioners, and water filtration systems are just some of the basic home appliances that are expected to generate demand for silver. The market for anti-microbial additives in plastics and polymers with retained anti-bacterial effects has experienced significant worldwide growth over the last several years. This growth has been driven primarily by the increasing occurrence of infections caused by bacteria and fungi. This technology can be used in almost every application where silver can be used to fight bacteria including tap fittings, bench tops or light switches. The quantity of silver used in these medical applications currently remains modest due to the lead times in adopting new technology, but over time is expected to grow.
Environmental Applications
Demand for silver is also anticipated to experience a potentially large expansion into environmentally friendly alternatives to toxic metal and solvent based systems used for wood preservation by the timber industry, which faces increasingly tighter environmental legislation.
High-Tech
Another emerging high-tech use for silver is Radio Frequency Identification (RFID). Similar to a bar code, RFID tags are applied to or incorporated into a product, animal, or person for the purpose of identification and tracking using radio waves. Currently the technology is used for a multitude of applications from transportation payments such as toll roads and seasonal parking tickets, to product tracking for inventory and promotional purposes, to animal and even human identification. RFID tags, which each contain about 10 milligrams of silver, may one day replace barcodes as a universal identification and tracking technology.
In addition, silver conductive inks for use in printed electronics to meet the need for low-cost processing in emerging markets such as Touch Screens and devices such as Organic Light Emitting Diodes is another area poised for explosive growth. According to industry estimates, the printed electronics market is expected to reach $10 billion by 2012, and as much as $300 billion by 2025. These nanosilver inks can offer higher resolution, improved performance, and reduced material usage compared to thick film silver pastes, opening the door to substantial markets for silver inks that would not be available to conventional silver pastes. Similarly, silver inks, used mainly in such applications such as membrane switches and PCBs is set to expand as demand for RFID technology continues to develop.
Supply
Currently, annual mine production versus demand remains in shortfall 150 to 200 Moz. Though world mine production rose by 4% in 2009, achieving a record high of 709.6 M oz, a 6% drop in global silver scrap supply and over 50% drop in net government sales resulted in relatively flat to falling global year-over-year silver supply.
Demand
In 2009, overall silver demand rose slightly despite the depressed industrial market. Demand for implied net investment grew significantly as a result of increase demand for ETF holdings and physical investment. Producer de-hedging also rose substantially. The lower demand for industrial silver caused a decrease in total fabrication, and cut industrial offtake by 20.6%. Jewellery demand dropped by only 1.1% while silverware reversed trend, rising 4.6%. Due to the emergence of new high-tech uses for silver such as in photovoltaic solar panels, which GFMS predicted dramatic increases over the next decade, further areas of growth in industrial silver usage are anticipated.
The Price of Silver
The fundamentals for silver and gold appear strongly supportive for higher prices based on global monetary factors, and especially in terms of the investment demand both metals have seen over the past several years in all forms including Exchange Traded Funds (ETF’s), bars and coins. For silver specifically, the increased use in industrial applications ranging from biomedical to high technology is notable as it has become an increasingly larger percentage of the total annual demand. Up until the recent global economic crisis, industrial demand for silver had risen consistently on an annual basis over the six-year period starting from 2002. Total global silver supply peaked in 2005 and has been flat to falling since that year. With an anticipated rebound in industrial demand as the global economy comes back to life, the fundamentals look quite bullish for higher silver prices with a return to growing industrial demand coupled with continued strong investment demand and flat to falling total global supplies of silver.
* Source: GFMS Silver Yearbook, 2010 World Silver Survey
