Background
Investors are disillusioned by the inability of silver prices to rise to higher ground as silver enters its 4th year of looking anything but sparkling. As a silver bug I think that we have suffered long enough, but finding the ignition that will set silver on fire is proving to be difficult. There are a myriad of factors to consider before making an investment in silver, such as: supply and demand, price manipulation, industrial usage, jewelry, investment, various metrics such as the gold/silver price ratio, etc. The list is almost endless, so today we will look at just one of the factors which we think is important; the imposition of import duties on solar panels.
US Import Duties On Chinese Solar Panels
On 03 June 2014, the United States imposed new import duties on solar panels imported from China. The Commerce Department has taken a stance in that they are of the opinion that these panels were produced with the aid of government subsidies which gives Chinese manufactures the upper hand when competing with the home based manufacturing industry.
Back in December 2012, the US imposed duties of about 30 percent on solar panels made by Chinese importers. However, the Chinese managed to dodge this imposition by having the production of the cells carried out elsewhere, such as Taiwan.
The value of these imports from China increased to around US$3.0bn in 2012, provoking the US to impose duties averaging about 31 percent on panels emanating from China at that time. Further, anti-flooding duties are also expected to be announced next month so this figure of 30% could go even higher.
This is important, as according to the Silver Institute:
“silver is a primary ingredient in the photovoltaic cells that catch the sun’s rays and transform them into energy. 90% of crystalline silicon photovoltaic cells (the most common cell) use silver paste and over 100 million ounces of silver are projected for use by solar energy in 2015.”
If these import taxes are successful in their application, then the corresponding price increase could be a deterrent to the user, who may well want to consider alternatives to solar energy. In many parts of the world it is a marginal decision to use solar panels and such a sudden increase in price could be the nail in the coffin for them. Should investors turn away, then the estimated requirement of 100 million ounces could be severely dented. A lot will depend on just how ‘green’ the purchasers are, some will go solar almost regardless of the cost as green energy forms an important element of their personal objectives. However, in the competitive world of business, these price increases may be too much to bear and the installation of solar panels may be shelved until they become more competitive on a life cycle costing basis.
The counter balance to this argument is that China is suffering from the tremendous problem of pollution and they themselves may have to increase their own exposure to solar energy in order to achieve some respite, putting pressure of silver prices.
Chart Depicting Silver's Rise and Fall
This 4 year chart shows silvers meteoric rise and subsequent fall back to where this rally started. The downward trend looks to have flattened out into a consolidation pattern with a break out either way, on the cards. The RSI is heading north out of the oversold zone suggesting higher prices in the short term, and the STO has bounced indicating higher prices in the short term.
Conclusion
I am a silver bull, but not a perma-silver bull, as I believe there is a time to be fully invested and a time to take shelter in the form of cash. At the moment we are not prepared to adopt a cavalier approach to silver investment or their associated producers, especially now; as we head into the relatively inactive summer period for the precious metals sector.
The lion’s share of our portfolio is in cash and we admit to finding it difficult being patient as we wait for the real bottom to form and the opportunity to buy at rock bottom entry levels. We are aware that this down trend has existed for almost four years and has tested the patience of the most ardent bulls; however, that’s not a reason to hit the acquisition trail with gusto.
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