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Toronto—(Kitco News)--Modern industrial demand uses of silver will become more important in determining silver’s price in the coming years, eventually outweighing investment demand, said an official with a major mining firm.

Modern industrial demand, which includes brazing alloys and solder, photovoltaic cells and electronics rose to use 487 million ounces in 2010, a 78% increase from 1990 levels, said Phil Baker, president and chief executive officer of U.S.-based Hecla Mining (NYSE:HL). Baker was speaking at PDAC2012, the Prospectors and Developers Association of Canada convention here.

“Demand for silver is the best it has ever been in the history of mankind,” said Baker. “The reason why people like silver is the nature of the metal itself. Silver is the metal behind the technological revolution that we have experienced.”

Baker also expected silver prices to test silver’s high from last April of near $50, but said there is likely to be “a great deal of volatility” for prices.

Currently, investment demand is helping to use up excess supplies and has been a major factor in driving silver’s price and will continue to be in the near-term. But as urbanization in China grows and the middle class there enlarges, demand for silver as both a lifestyle metal and demand for the durable goods objects that use silver – such as cell phones and computers – modern demand will play a “pivotal” role in silver demand for the long-term, Baker said.

Silver remains in a surplus, as the present silver supply is approximately 950 million ounces and demand is at 900 million ounces. By 2015 silver supply should rise by 90 million ounces to 1.05 billion, while demand is forecast to b e 1.1 billion by 2015.

Baker noted that given that modern demand in China and India is expected to grow by 9% annually, there could be a potential shortage if demand is larger than expected. That forecast does not include any investment demand.

Although supply should outweigh demand for now, maximum mine output should be reached in 2014-15 as there are no large-scale projects in the pipeline, Baker said.

DEMAND

Demand for silver during 1990-2010 rose sharply in several categories, including a 197% increase in coins and medals. Coins and medals now represent 46% of silver demand in 2010 from 38% in 2010. Jewelry and silverware saw a 15% increase.

The only category to see a decrease was in photography, which fell 15% because of the move to digital photography from film. In 1990, photographic uses was as much as 31% of demand, but shrunk to 7% by 2010.

The modern demand category has changed who uses silver. In 1990, U.S. commanded 18% of the category, and China and India combined saw silver demand of 10%. By 2010, U.S. demand was 24% of the category, with China and India combined at 30%.During the timeframe, Chinese demand rose 9.8% annually, Indian demand rose 7.8% annually and U.S. rose 4.4%.

By 2015 combined Chinese and Indian silver modern demand is expected to reach 225 million ounces, and will be driven by export and domestic demand. Of that, Chinese demand alone is forecast to be 135 million by 2015, and Chinese demand is seen rising 9.5% annually, based on a historical 20-year annual growth rate.

Even with the growth in that part of Asia, Baker said the U.S. will be the key driver for this type of demand, and is the largest supplier both domestically and through exports. He forecast their demand to rise 4% annually to 140 million ounces by 2015.

By 2015 total modern demand should use up 650 million ounces of silver and 850 million by 2020, with China and India combined representing 40% of modern silver demand by 2020.

There are two risks to the forecast, Baker said, one that there is an extended global slowdown and second that industrial users begin to substitute silver for other less expensive metals. But he doesn’t think substitution will have that much of an impact because of the properties of silver.