Rhodium may see further upside in 2021: Afriforesight

London — Rhodium prices may maintain their upward momentum in 2021 as tightening emission standards continue to boost demand from auto catalyst manufacturers and as auto production picks up with easing microchip shortages, South African research firm Afriforesight's head of precious metals, Pearson Mururi, told S&P Global Platts.

On March 22, the BASF rhodium base price hit $30,000/oz for the first time ever.

Assessed on March 18, the Platts New York Dealer price range increase to $23,000-$29,000/oz for March 12-18 from $22,000-$29,000/oz the previous week.

On March 23, Johnson Matthey -- the largest secondary PGM refiner in the world -- said its rhodium base price stood at $29,800/oz, up 0.7% from March 22, while the rhodium price of refiner Engelhard Materials Services (BASF) of Germany stood at $30,000/oz, up 22.5% from March 16.

"The processing of inventories accumulated in South Africa during 2020 (due to the Anglo American Platinum's ACP unit outages) should boost PGM supply and hold back price increases somewhat. Price increases should be slowed further by substitution of rhodium with platinum in some industrial uses," Mururi told Platts. "The ongoing microchip shortages which have slowed global vehicle production are expected to persist until at least mid-year, also weighing on auto catalyst demand and prices,"

Also on the supply side, Norilsk Nickel -- the world's largest producer of palladium and a major producer of platinum -- said March 16 that it now expected its output volumes to drop around 22 mt or around 710,000 oz for platinum and palladium. In 2020, the Russian miner accounted for around 12% of global rhodium supply.

South Africa accounts for around 80% of global, mined rhodium supply. Anglo American Platinum (Amplats) processes about 30% of global PGM production.

Incentivizing new production

Mururi said the high rhodium prices have not incentivized new PGM production in the past as platinum dominates the South African PGM basket, with rhodium generally less than 10% of the mined PGM volumes.

"The lower platinum prices in the last five years disincentivized investment in new projects and production growth," Mururi said. "However, platinum prices are now expected to rise and rhodium's contribution to PGM producer revenues has also grown from less than 5% in 2016 to about 50% currently making it an important factor in investment decisions."

The analyst said investment in South Africa has also started to flow into brownfield and expansion projects containing high rhodium grades.

"New projects [are] expected to come online led by Sibanye-Stillwater's 250,000 oz/year 4E PGM, K4 project from 2022 and the African Rainbow Minerals and Amplats JV's 180,000 oz/year 6E PGM, Two Rivers Merensky project mine from 2023," Mururi said. "We expect more projects to be announced targeting production starts from 2024. Despite the outlook for improving supply, we still expect rhodium to remain in deficit until 2025."

Secondary market

Though capacity issues at refineries have given rise to bottlenecks in the secondary rhodium market, due to capacity limitations and only a handful of market recyclers, Mururi said recycled supply is expected to increase strongly in 2021 and return towards the record levels achieved in 2019 as high PGM prices incentivize collection and processing of scrap vehicles.

"Higher copper and steel prices should also make scrapping of vehicles attractive," the analyst said. "The theft of catalytic converters from vehicles should continue to rise given the high PGM prices; however, the impact on overall recycled supply should remain minimal."

In terms of where rhodium is likely to trade over the next four years until 2025, Mururi said that "prices should remain at high levels until 2025 but should remain mostly within the $20,000-$30,000 range with increases gradually slowing due to improving supply and the increasing market share of electric vehicles."