Rhodium: Is something unusual going on?
Rhodium prices tell an interesting story that is attention worthy. Around this time a year ago, at the close of trading on 21st January 2020, rhodium prices were at US$9,400/troy oz. Just three months earlier, a troy ounce sold at US$5,550. As at the close of trading on 15 January 2021, the price of rhodium is US$21,500/troy oz, twice its price a year ago.
Prices have increased at a monthly average rate of 11% since January 2020, the highest month-on-month average growth occurring in February of 2020 at 33.5%. Average prices so far this month have grown 14.3% from the December 2020 average.
What is rhodium and what is it used for?
Rhodium is one of the six-member family of Platinum Group Metals (PGMs) which include palladium, platinum, iridium, osmium, and ruthenium. Its most common use is for the production of catalytic converters and emission control catalysts particularly in motor vehicles. Typically, about 80% of the mined metal consumed globally is used in the automotive industry and mainly for the reduction of nitrogen oxides in exhaust gases.
Other uses include:
For glass manufacturing, the second most common use for the metal, particularly in producing flat-panel glass and fiberglass;
Electroplating and coating (‘rhodium flashing’) on platinum or gold to provide a reflective surface, or on silver to protect it from tarnishing;
As an industrial catalyst, particularly in chemical reactions of acetic acid, nitric acid, and hydrogenation reaction;
For the creation of alloys, where it is used as an agent with other PGM metals such as palladium and platinum to make the alloys tough and resistant to corrosion;
For optical instrument manufacturing, where plated rhodium is applied;
In mammography systems, as a filter in X-ray production; and as
Neutron detectors in nuclear reactors.
Where do you find it?
South Africa is the largest producer, accounting for over 80% of global supply. Russia is the second largest producer, accounting for under 10%.
Why are prices on the up?
Mining output from PGMs is a main contributor to the price increase. In particular, disruptions in South African production have caused output to drop significantly.
It is estimated that 2020 output from South Africa alone dropped by around 20%, forcing producers to participate more actively in the open market as buyers in order to meet contracted volumes.
Another contributing factor, despite the negative impact of global economic restrictions in response to the Covid-19 pandemic, has been an increase in demand for catalytic converters in the automotive industry. Stringent emission regulations across the globe and growth in automotive manufacturing in Asia have been major contributing factors.
Rhodium prices are known to be volatile. This is not the first time that prices have experienced such spikes, albeit not to current heights even when adjusted for inflation. Its rarity and output dominance by one country imply that any disruptions in South African production could significantly affect supply and prices. Another factor worth tracking is the transition away from fossil fuels, particularly in the automotive market. A faster growth in the manufacturing of electric cars, in addition to more aggressive climate change policy on internal combustion engine emissions, will reduce the demand for rhodium and apply some downward pressure on prices.