Rhodium prices have been surging in 2020 amid tight supply, but analysts doubt there will be a flood of new output from miners looking to capitalize on a strong market.
"There is not much in the way of elasticity," BMO Capital Markets analyst Colin Hamilton told S&P Global Market Intelligence.
Rhodium is a noble metal and forms part of the platinum group metals classification. It is largely sourced from PGM mines in South Africa and is mainly used in catalytic converters in vehicles to help remove pollutants from exhaust.
With a relatively small market and production dependent on mines where the primary commodity is typically another precious or base metal, high rhodium prices do not easily spur miners to develop new supply, which can take many years in the case of fresh mines.
Further, rhodium is known for wild price spikes and equally crushing falls. "Rhodium isn't the most liquid, so you can see big swings," Hamilton noted.
In recent trading, rhodium has sold for about $16,000 per ounce, or about double its price in early 2020 and an order of magnitude greater than it has been for much of the past decade. As recently as mid-2017, the metal sold for under $1,000/oz, according to Johnson Matthey. Johnson Matthey is a multinational company and its segments include specialty chemicals and PGM recycling.
Heraeus Precious Metals, a key refiner of platinum group metals, said there could be small increases to rhodium output at existing operations, but that major developments were unlikely, in a Nov. 16 pricing report.
"The rhodium price is volatile and producers will be reluctant to rely on the rhodium price staying at historically high levels to justify the investment in restarting a mine that could be in production for a decade or more," the refiner said.
Rhodium's record prices are primarily a result of decreased output from South Africa. Anglo American Platinum Ltd. said earlier in November that it would close and rebuild its Waterval smelter complex in the country. Hamilton said the closure has likely driven producers with rhodium sales commitments to increase market purchases, driving up the price.
On top of tight supply in South Africa, rhodium's pricing strength is also linked to a recovering auto sector amid the ongoing coronavirus pandemic.
While there could be some thrifting away from rhodium in catalysts, demand is stable "given rhodium's crucial role in NOx reduction," Hamilton said, referring to nitrogen oxides, one of the main pollutants in automobile exhaust that contributes to smog.
Still, Hamilton said he expected carmakers to hold off on major rhodium purchases until 2021 due to current pricing.
It is unclear whether rhodium will pull back. Jeffrey Christian, managing partner of CPM Group, told Market Intelligence that he sees tight supply and rising demand supporting rhodium prices in 2021.
Christian also noted that investors and traders play a major role in rhodium price action as they buy and sell inventories.
"We expect rhodium prices to remain high and be pushed higher," he said.