Rhodium price forecast: Will deficit lift the market again?
Rhodium prices have been stable for the past month after recovering in mid-September from a sharp crash. According to data from Johnson Matthey, a major manufacturer of products containing the platinum group metals (PGMs), the metal last traded at $14,100 a troy ounce on 1 November, broadly unchanged from $14,000 a week ago.
So far in 2021, prices have remained under pressure from the automotive production constraint as several carmakers announced they had cut output because of semiconductor shortages.
After hitting a record high earlier this year, where will the market go from here? Read this analysis to learn more about the rhodium outlook for 2021-2025.
What is rhodium?
Rhodium is the rarest of the PGMs and a by-product of platinum mining. It occurs in ores mixed with other metals, such as palladium, silver, platinum and gold. The metal is corrosion resistant because it is unaffected by air and water up to 600°C.
Why is rhodium so expensive?
Rhodium prices are higher than those of other PGMs because of the metal’s rarity and the complex industrial extraction process required to produce it. There are very few rhodium minerals, and more than 80% of the global ores are concentrated in South Africa followed by Russia. According to the Minor Metal Trade Association (MMTA), the annual world production is only about 25 tonnes. Rising demand for the metal amid supply tightness has further increased rhodium prices.
Some of the largest exchange-traded Rhodium mining companies’ stocks are Anglo-America (NGLOY), Implats (IMPUY), Sibanye-Stillwater (SBSW) and Russia’s Nornickel (GMKN).
What is rhodium used for?
Rhodium is mostly used in catalytic converters in cars, which reduce toxic gas emissions. Of the global rhodium supply, more than 80% is consumed in the automotive market. Platinum-rhodium is also used as a catalyst in the production of nitric acid, which is a key raw material for fertiliser.
Rhodium historical prices overview
The metal hit a record high in March this year as demand outstripped supply. The precious metal started 2021 at $17,300 a troy ounce and peaked at $29,800 on 23 March – an all-time high.
Prices corrected downwards in the second quarter as the lower automotive production pulled the metal lower. Reduced automotive output has led to lower catalytic converters being manufactured, which weighed on rhodium demand. As a result, prices have been falling since mid-May and dropped to $11,250 on 16 September, the lowest in 2021. Prices have since rebounded amid improving anticatalyst consumption.
Although rhodium prices have fallen by more than 50% from the peak of the market this year, the precious metal is still significantly higher than prices in the last decade, where prices were mostly between $1,000-$1,500 an ounce.
The high prices have benefited rhodium stocks as the precious metal lifted producers’ profit and became the biggest revenue stream.
The surge in the metal’s prices have also highlighted rhodium as an investment, leading to increased interest in rhodium exchange-traded funds (ETFs). As the rhodium value peaked earlier this year, many investors took profit by liquidating their ETF position. According to major PGMs’ consumer Johnson Matthey, around 14,000 ounces of rhodium remained in ETFs by May this year.
Rhodium market in deficit
Although rhodium production is expected to normalise this year, the global market is forecast to be in a 31,000-ounce deficit in 2021, according to Johnson Matthey’s data.
Mining and refining operations in South Africa were disrupted by Covid-19 lockdown measures in 2020. but this has largely been resolved in 2021. Although South Africa was hit by a third wave of Covid-19 infections in the third quarter, producers have maintained operations without significant disruption.
More than 60% of the global rhodium supply is from primary production while recycling accounts for the remaining output.
The largest PGMs producers Anglo-America and Sibanye-Stillwater expect the rhodium market to be in deficit in the next few years.
Sibanye-Stillwater’s PGM sales and marketing senior vice president Kleantha Pillay said:
While Anglo-America said:
Rhodium forecast: what’s next for the precious metal?
Many countries across the world have implemented stricter vehicle emission standards as part of their long-term carbon net-zero targets, this has increased demand for catalytic converters in cars and in turn boosted industrial consumption of rhodium.
Despite the recent decline in rhodium prices, producers remained positive in the short to medium term as the automotive supply chain constraint eases.
Sibanye-Stillwater wrote in its third-quarter results for 2021, published on 28: October:
According to the producer’s research, rhodium demand is expected to increase in the next few years before tapering at the end of the decade as internal combustion engine (ICE) production declines.
Sibanye-Stillwater expects rhodium demand in 2022 to reach 1.2 million ounces and the consumption volume to continue to rise for the subsequent seven years, before falling in 2030 with lower ICE production.
Despite rising battery electric vehicles (BEV) sales and carmakers’ massive investment in BEV development, Stillwater said ICE production will likely continue to dominate the automotive market and will peak at 88 million cars in 2027.
Sibanye-Stillwater’s PGM sales and marketing senior vice president Kleantha Pillay said at the company’s investor day in September:
Johnson Matthey’s research also indicated growing auto demand. According to data, autocatalyst consumption of rhodium will rise by 11% to 1.051 million ounces in 2021 – a new all-time high.
As a result of the high prices, rhodium consumers are finding ways to reduce the volume of the metal used in products. This thrifting practice is not expected to have a significant impact on demand in 2021 but technological advancement in the car sector has contributed to “aggressive thrifting programmes”, said Johnson Matthey.
“In the automotive industry, this has contributed to distinct cycles of rising rhodium loadings during periods of tightening legislation, followed by aggressive thrifting programmes in response to high prices,” it added.
The rhodium spot market could be dampened by the precious metal’s high prices and thrifting practises. “At current price levels companies may choose to defer their purchases as long as possible,” said Johnson Matthey.
According to data, the global demand for rhodium in 2021 is expected at 1.157 million ounces, up 13.5% from the previous year.
The rhodium price prediction will be largely dependent on the automotive demand as the sector is a key consumer of the precious metal. However, as it is difficult to predict automotive demand, rhodium spot price forecasts are in a wide range.
Consultancy Fitch Ratings’ key assumptions for rhodium are: $19,352 an ounce in 2021, $7,500 in 2022, $6,000 in 2023 and $4,500 in 2024.
In the meantime, South African producer Sibanye-Stillwater has used a less bullish price assumption of $8,500 an ounce in 2021 and $5,650 for the following year to estimate returns from its K4 projects at Marikana in South Africa.
It should be noted that this article does not constitute financial or investment advice. Before investing in any EV-related company, always do your own research and remember that your decision should be based on your attitude to risk, your expertise in this market, the spread of your portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose.
FAQs
Is rhodium a precious metal?
Yes, rhodium is a precious metal and is one of six elements of the platinum group metals (PGMs).
Is rhodium better than gold?
Both rhodium and gold are precious metals. In the meantime, rhodium is an industrial metal and is not used as a safe-haven asset like gold. Whether rhodium is better than gold depends on your investment purposes.
Where is rhodium traded?
The rhodium market is much smaller compared with platinum by consumption volume. The precious metal does not trade on exchanges and most transactions happen in the physical market, where consumers, such as carmakers, purchase the metal from suppliers. Rhodium is also traded in the form of physically-backed exchange-traded funds (ETFs), where investors do not hold physical assets.
Is rhodium a good investment?
Rhodium prices have been volatile over the past year. While it rose at the beginning of 2021, it has also dropped sharply in the second quarter. Whether it’s a suitable investment for you depends on your investing goals and risk profile. You should do your own research and never invest what you cannot afford to lose. And, as always, keep in mind that past performance is no indicator of future returns.
Will the rhodium price go up or down?
The rhodium price is driven by supply and demand, among other factors. Prices are likely to increase when demand outstrips supply and vice versa. The automotive demand trend also has an impact on rhodium demand because the sector is the biggest consumer of the metal.
The difference between trading assets and contracts for difference (CFDs)
The main difference between CFD trading and trading assets, such as stocks and commodities is that you don’t own the underlying asset when you trade using a CFD.
You can still benefit if the market moves in your favour or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you will only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1:1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also need to pay a broker’s commission or fees when buying and selling assets directly, and you’d need somewhere to store them safely.