Rhodium market remains tight: CPM Group

London — The rhodium base price has maintained its record high for a second consecutive day with the rhodium market remaining tight, CPM Group precious metals research head Rohit Savant told S&P Global.

"Supply from South Africa, which accounts for around 80% of global rhodium mine supply is still recovering from the mine shutdowns earlier this year and now there is an added threat from [stated-owned electricity utility] Eskom related disruptions to supply," Savant said.

"There also seems to be some buying ahead of the seasonally strong period of demand that is typically observed over the fourth and first quarter of the year."

In February, Neal Froneman, CEO of Sibanye-Stillwater -- the world's largest primary producer of platinum and rhodium -- said the insecurity of power supply was the biggest risk currently facing South Africa's mining industry. Eskom supplies around 95% of the country's electricity.

The Johnson Matthey (JM) rhodium London base price as of 0800 GMT Sept. 17, stood at $14,500/oz, up 9% week on week.

Savant said passenger vehicle demand remained fairly weak worldwide, which was expected to continue acting as a headwind "at least in the near term".

Nearly 80% of demand for rhodium comes from the global automotive industry, which uses the metal in catalytic converters to control emissions of greenhouse gases and pollutants

Registrations of new passenger cars in the EU in August were down 19% year on year, the European Automobile Manufacturers' Association said Sept. 17.

"This is a bigger decline again than in July, when new car registrations were "only" 6% down on the previous year," Commerzbank commodities analyst Carsten Fritsch said in a note.

"New car registrations since the beginning of the year are 32% down on the same period last year, meaning that the auto market in Europe is continuing to lag significantly behind their counterparts in the US and China."

China's auto sales down 15%

Savant said in China, where sales growth has turned positive since May, supported by dealer and government incentives, year to date sales during the first eight months of 2020 are still down 15.3% year on year.

"It is quite unlikely that the sales growth being staged in China at present will be able to offset the loss in demand for passenger vehicles during the first four months of this year and also how sustainable the demand since May will be," the CPM analyst said.

"There are some expectations of a vaccine later this year or early next year. If and when the vaccine is approved for use, it will help to improve consumer sentiment which coupled with an extremely low interest rate environment should help demand in the coming year. The rhodium market seems to be positioning for this outcome."

Savant said rhodium price volatility should be expected in coming months.

"Given how volatile rhodium prices are a new record high in the coming days should not be ruled out, a quick decline in prices also is possible. On the downside, there is strong support for rhodium prices around the $9,000/oz level."