Rhodium on the rise

Heidi Vella 7 May 2020 (Last Updated May 6th, 2020 11:39)

Rhodium is trading at its highest level since 2008, driven by supply shortages and increased demand from the automotive industry. We examine the supply and demand dynamics of rhodium.

Rhodium on the rise
Anglo American Platinum’s Mogalakwena mine in South Africa. Around 80 – 90% of rhodium comes from South African Platinum mines. Credit: Anglo American

Part of the platinum group metals (PGM), rhodium is a silvery-white chemical element coveted for its hard corrosion-resistant properties. Since the beginning of the year, the price of the metal, which is mined as a by-product of platinum and palladium, has surged by nearly 114%.

New automotive emissions standards in China and Europe are thought to be responsible for the price rise, as the metal is used in catalytic converters to reduce toxic gas emissions in exhaust systems. More than 80% of demand for rhodium comes from the automotive industry but there are also issues on the supply side that are causing the availability of the metal to fall into deficit.

Rhodium supply

Around 80-90% of rhodium comes from South African platinum mines, but it typically accounts for around less than 10% of the ounces mined.

Therefore, rhodium price has traditionally only had a limited impact on investment in mining projects, says Neal Brewster, manager of strategic consulting at Roskill.

“What this means is the mine supply of rhodium can be quite inelastic,” says Brewster.

Depressed platinum prices have suppressed overall investment in new mining projects that are able to supply rhodium, further compounding supply restrictions.

“Demand in autocatalysts has overtaken supply, particularly in the last 12 months, causing prices to rocket; the spot price today for rhodium is over $13,000 per ounce, whereas in 2017 the average price was less than $1,000,” adds Brewster.

The recent announcement from Anglo American Platinum that it will temporarily shut down its entire Anglo Converter Plant in Rustenburg, following an explosion last month, is also impacting the availability of rhodium. The company accounts for around a quarter of all supply.

Demand for rhodium

Earlier in the year, chief executive of Anglo American, Mark Cutifani, said he expects demand for rhodium catalysts to remain high as automakers work to reduce emissions.

“An automobile chief executive will not get fired for spending fifty dollars a car extra on PGMs but they might get fired for not meeting their emission targets,” he said.

The increase in average PGM loadings on vehicle emissions, due primarily to new rules in China, has so far more than offset recent weak global auto sales, which contracted by 4% globally in 2019, says Marcus Garvey, associate director at Macquarie.

“To comply with these new rules, average PGM loadings on the country’s new auto-catalysts have increased by 15-20%. With China’s light vehicle sales being  roughly 90% gasoline engines, this has primarily been a demand boost for palladium and rhodium,” adds Garvey.

Moves in the market

The only imminent risk to rising demand is the ongoing coronavirus pandemic which may affect near-term automobile demand. According to reports, car sales in China plummeted 80% in February from a year ago.

However, long-term demand for palladium and rhodium will remain unchanged unless automakers substitute it with other metals.

“Where possible, carmakers may start using platinum in place of palladium and rhodium – and ultimately incentivise automakers to thrift out as much rhodium as they are able to while still meeting emissions standards,” says Garvey.

Carmakers such as Fiat Chrysler have said they have teams of people looking at how to offset the increase in costs resulting from rallying rhodium prices. However, there is not any obvious substitution that can perform to the same standards.

In terms of supply, Brewster says there is some growth in rhodium production in Roskill’s forecast, of 1-2% per year.

“But unless we see a shock to demand, the market is expected to be in deficit until the middle of the decade,” says Brewster. If the prices remain high, Brewster says rhodium, which is 13 times the price of platinum, could move from being a by-product to a core product, driving mine investment.

Garvey agrees that, although rhodium is a relatively small market, because of its price point it is currently a larger market than platinum.

“For South African PGM miners, who produce a basket of around 57% platinum, 33% palladium, and 8% rhodium, plus a mixture of gold and minor PGMs, rhodium currently accounts for 40% of the basket’s value,” says Garvey.

As examples of this, Impala Platinum recently reversed its 2018 decision to close two previously loss making mine shafts.

Northam also decided to re-open the Eland mine in South Africa. The company CEO, Paul Dunne, has said that the deficit in rhodium is rising by about 20% a year.

Future forecasts

The lack of primary rhodium mines will continue to constrain the potential for supply growth. Moreover, the current major PGM projects under development or investment consideration are all relatively low rhodium, says Garvey.

“This is because they are based in Russia, North America and South Africa’s Northern Limb, all of which have ore bodies with low rhodium, generally below 5% compared to South Africa’s Western Limb where legacy mines ore can contain in excess of 10% rhodium,” he explains.

However, while a deficit is likely to remain the story for the near-to-midterm, towards the end of the decade there could be a switch back to a surplus as electric vehicle take-up reaches a critical point, says Brewster.

“As we head towards the end of the decade, we think we’ll see falling demand for rhodium in autocatalysts as we reach a turning point with EVs. We also expect significant growth in recycled material to occur. These combined effects mean the rhodium market will then likely go back into surplus,” he explains.