Global demand for rhodium, used mostly in catalytic converters to clean vehicle emissions, is poised to exceed output by the most in three decades as car makers and chemical companies snap up supplies near the lowest prices in nine years.
Buying of the metal will top output this year by 78 000 ounces, the most since at least 1984, according to Deutsche Bank and Johnson Matthey. Prices will halt a four-year drop, rising 4.8 percent to average $1 100 (R12 205) an ounce in the fourth quarter, a survey of 11 analysts shows. Goldman Sachs sees gains through 2017.
Demand is rebounding after a 91 percent plunge in prices from a record $10 100 in 2008 that forced manufacturers to use more platinum and palladium, which have similar properties. The switch left rhodium inventories at an all-time high of about 1 million ounces last year, as car sales surged and governments imposed stricter emissions laws. A rally would ease the profit squeeze on companies including Lonmin as labour unrest in South Africa erodes output.
“Rhodium is back on the up, and industrial buying has really driven prices,” Jonathan Butler, a precious metals strategist at Mitsubishi Corporation International (Europe), said. “Car companies had been wary of using rhodium, and now they’re starting to look at using more.”
Prices have rallied 18 percent since reaching $890 on December 5 last year, the lowest since June 2004, according to Johnson Matthey, which makes about one in three catalytic converters. The Standard & Poor’s GSCI spot index of 24 commodities has gained 0.4 percent over the same period, and the MSCI all country world index of equities has added 0.3 percent. The Bloomberg US treasury bond index has increased 1.1 percent.
While gold last year averaged about $1 411 an ounce, up 62 percent from 2008, rhodium plunged 84 percent to $1 066 on average. Platinum was down 5.6 percent on average at $1 486 an ounce over the period, and palladium more than doubled to $725.80. This year, rhodium is the best-performing precious metal, up 7.7 percent since the start of the year, compared with 6.5 percent for gold and 3.4 percent for silver. Goldman Sachs predicts rhodium will average $1 200 next year, $1 250 in 2016 and $1 300 in 2017.
Global demand would exceed supply every year through 2020, with a shortfall of 530 000 ounces accumulated during that period, Deutsche Bank said in a January 14 report. The bank is forecasting supply will drop 0.7 percent this year as consumption jumps 5.8 percent to 1.09 million ounces, the highest since Johnson Matthey began tracking the data in 1985.
Vehicle makers account for about 78 percent of demand, using the metal in canisters with honeycomb-like surfaces that convert emissions into less-harmful substances. Sales of cars and light commercial vehicles will rise 5 percent to a record 88.4 million units this year and gain another 5.4 percent in 2015, estimates LMC Automotive, a research company in England.
The industry will boost rhodium purchases by 4.5 percent this year, according to Deutsche Bank.
New laws imposing stricter limits on vehicle emissions may increase the use of rhodium in catalytic converters, according to Mitsubishi and Johnson Matthey.
While the metal is mainly used for petrol engines alongside palladium, so-called Euro 6 standards introduced this year that require vehicles to further cut nitrogen -oxide emissions may mean more of the metal is used in diesel vehicles in Europe.
While usage varies by product and manufacturer, petrol catalysts on average contain about 10 percent rhodium, while palladium accounts for 80 percent to 85 percent, and platinum making up the rest, according to Johnson Matthey.