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London - Global demand for rhodium, used mostly in catalysts to clean auto emissions, is poised to exceed output by the most in three decades as carmakers 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 AG and Johnson Matthey Plc.
Prices will halt a four-year drop, rising 4.8 percent to average $1,100 an ounce in the fourth quarter, a survey of 11 analysts shows.
Goldman Sachs Group Inc. 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 in 2013, just as car sales surge and governments imposed stricter emissions laws.
A rally would ease the profit squeeze on companies including Lonmin with mines in South Africa, the world’s top producer, as labour unrest erodes output.
“Rhodium is back on the up, and industrial buying has really driven prices,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp. International (Europe) Plc in London.
“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, the lowest since June 2004, according to Johnson Matthey, which makes about one in three of the world’s catalytic converters.
The Standard & Poor’s GSCI Spot Index of 24 commodities gained 0.7 percent over the same period, and the MSCI All-Country World Index of equities added 0.7 percent.
The Bloomberg US Treasury Bond Index increased 1.2 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 end of December, compared with 6.5 percent for gold and 3.6 percent for silver.
Goldman predicts rhodium will average $1,200 next year, $1,250 in 2016 and $1,300 in 2017.
Global demand will 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 started tracking the data in 1985.
Automakers 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 Ltd., a research company in Oxford, England.
The industry will boost rhodium purchases by 4.5 percent this year, according to Deutsche Bank.
New laws imposing stricter limits on auto emissions may increase the use of rhodium in catalytic converters, according to Mitsubishi and Johnson Matthey.
While the metal is mainly used for gasoline 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, gasoline 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.
The metal may not be cheap enough to encourage switching.
From $530 on average in 2003, prices ballooned 19-fold to more than $10,000 over five years as industrial users hoarded the metal amid concern that South African mine supply would fall.
Platinum reached a record $2,300 in 2008 and palladium reached a six-year high.
Manufacturers started using less rhodium in favour of other metals and increased recycling to cut costs, boosting producer-held inventories.
Supply beat demand by a combined 488,000 ounces in four years through 2011, Johnson Matthey estimates.
“Rhodium hasn’t had enough time for less supply to catch up with the demand growth in a way that it will drive prices higher,” said Albert Minassian, an analyst at Investec Plc in Cape Town.
“It’s probably a mid-term story.”
Supply from old catalytic converters will help compensate for more usage in new vehicles, Morgan Stanley said in a January 22 report.
Recycling will rise 1.4 percent this year and 9.1 percent in 2015, reaching 311,000 ounces, or enough to meet 36 percent of what car companies need, the New York bank said.
Rhodium may be too small a market for some investors. About 134 ounces of gold will be mined for every ounce of rhodium in 2014, Morgan Stanley estimates, and total output of rhodium will be just 12 percent of platinum production.
Deutsche Bank’s rhodium-backed exchange-traded products, begun in 2011, have holdings equal to 11 percent of annual supply, compared with 25 percent for global palladium ETPs and 34 percent for platinum funds, according to bank data and figures compiled by Bloomberg.
Still, holdings in the London and Frankfurt ETPs that Deutsche Bank created jumped 94 percent in 2013.
That’s more than the 71 percent in global holdings of platinum ETPs and 15 percent for palladium.
The rhodium assets climbed 4.7 percent this year as of February 7 to 106,560 ounces, according to the bank.
Rhodium’s four-year slump may boost the appeal of the metal as an alternative.
An ounce of rhodium buys about 0.75 ounce of platinum, compared with a ratio of 0.64 on December 10 that was the lowest since February 2004, data compiled by Bloomberg show.
An ounce of rhodium purchases 1.45 ounces of palladium, up from 1.21 in December that was the lowest since May 2000.
Chemical makers probably will boost rhodium demand by 7.6 percent this year, increasing usage in plastics and acetic acid, Deutsche Bank said.
The metal is mined alongside platinum and palladium, with about 80 percent of production coming from South Africa, according to Johnson Matthey.
Labor strikes and mine stoppages increase the risk of annual shortages in the country, where about 45 percent of platinum operations don’t break even.
South African rhodium output will fall 5.7 percent this year, Deutsche Bank forecasts.
The Association of Mineworkers and Construction Union called more than 70,000 members on strike on January 23 at Anglo American Platinum Ltd., Impala Platinum Holdings Plc and Lonmin mines.
Rhodium accounted for 7.1 percent of Anglo’s revenue in 2012, from as much as 26 percent in 2008, when prices averaged $6,529.
The Johannesburg-based company will report net income of 4.51 billion rand ($408 million) this year, the mean of 10 analyst estimates show.
Its shares rose 13 percent since the end of December, after dropping 12 percent last year.
Lonmin’s revenue from rhodium fell to 5.6 percent last year from 14 percent in 2010.
“There’s obviously the risk that, if the strikes spread across the industry, then it would be a factor supporting prices,” said Caroline Bain, a commodities economist at Capital Economics Ltd. in London.
“Demand looks to be fairly robust. With a pickup in demand, you’d expect the stockpiles to disappear a bit quicker.” - Bloomberg News