London — Rhodium base prices surged above $25,000/oz Feb. 25 for the first time ever, amid supply tightness, an existing deficit, stricter emissions regulation standards implemented worldwide and strong demand from China and Europe.
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The precious metal has been on multiyear bull run, rising 47% in the year to date, as well as being up forty-fold since August 2016, when it stood at $625/oz.
Johnson Matthey (JM), the largest secondary platinum group metal (PGM) refiner in the world, said its rhodium base prices stood at $25,450/oz, up 11% on Feb. 18, while refiner Engelhard Materials Services (BASF) of Germany stood at $25,300/oz, up 10% week on week.
Rhodium has only a handful of industrial uses in the chemical and glass sectors, though nearly 80% of the annual demand comes from the global automotive industry, which uses the metal in catalytic converters, and it is hard to substitute in these applications due to its unique physical and chemical properties.
Robust demand, supply disrupted
The robust demand has been largely tied to increasing nitrogen oxide (NOx) legislation globally, particularly in China. The Chinese auto market is the largest gasoline market in the world, with China's light vehicle sales being about 90% of gasoline engines.
On the supply side, COVID-19 severely disrupted South African supply in 2020, resulting in an estimated loss of some 130,000 oz. According to JM, total world primary supply of rhodium in 2020 came to 583,000 oz.
Rhodium is a byproduct of PGM mining and supply is largely tied to South Africa, which accounts for around 80% of global mined rhodium supply, produced by a small number of companies.
South African research firm Afriforesight's head of precious metals, Pearson Mururi, speaking during the company's Southern African Commodities Outlook for 2021 on Feb. 25, said rhodium accounts for less than 10% of South African PGM production but "for some of the producers it has been contributing to more than 50% of their revenues."
"We expect that going forward the prices will continue to grow but the supply response will be limited because rhodium is generally found in lower quantities [in the rhodium-poor northern limb in South Africa] and it will be difficult to target it more [as the longer term is to trend away from UG2 ore bodies]."
Anglo American Platinum (Amplats), the world's biggest producer of refined platinum and rhodium, said the repair of its Anglo Convertor Plant (ACP) Phase A unit at its Waterval smelter complex was completed in November, with ACP Phase B unit continuing its full rebuild and scheduled to be completed in the second half of 2021.
However, a key question is the extent to which Amplats' processing challenges have disrupted global supply and demand, and how as well as when will this normalize.
"[South Africa's] refined capacity is expected to be operating close to normal this year after Amplats successfully fixed its refinery capacity issues in their main plant," Mururi said. "Refined output should also be boosted by processing of stockpiles."
Amplats said that, as a result of the ACP process interruptions, there was a build-up of work-in-progress inventory of around 1 million PGM oz, with the build-up in inventory expected to be released by the end of 2022.
Another key question is how much higher PGM prices incentivize new platinum group metals as well as rhodium primary production and how much can be added by when.
Afriforesight's Mururi said that some of the projects that have been abandoned or cancelled, such as Stillwater-Sibanye's K4 project, are now coming back into play, with other producers potentially looking to finance similar projects to get them back online.
"That should up the rhodium supply to also grow in the near term," Mururi said. "We'll probably see some of the capital spent by PGM producers being directed towards UG2 reefs because they have higher rhodium [content of the UG2 ore] and because of the higher rhodium prices will benefit overall their profitability."
Heraeus Precious Metals, one of the world's largest platinum group metals refiners, said in a research note that Sibanye-Stillwater's K4 project could account for around 20,000 oz/year of rhodium, equivalent to 3% of South Africa's annual rhodium supply.
"However, restarts and projects can take years to reach full production," Heraeus said,
No quick ounces
On the subject of reaching full production, this was echoed by Nedbank analyst Arnold Van Graan, who told Platts that in terms of restarting operations "there are no such thing as quick ounces."
"I think that's the misnomer, when people think 'We can just open up mothballed mines and we are going to get a big supply of rhodium,' that's not the case," Van Graan said.
"Then you've got to say 'is there a will to do it?' because what about [state-owned electricity utility] Eskom? What about labour, because you have to remember that if you sign on people and the rhodium price turns, you're going to open up what was previously a marginal mine because the mothballed mines were closed for a reason," Van Graan said.
Another question is to what extent car companies can tolerate higher PGM prices and what potential alternatives are available to them, specifically the option to replace some rhodium with higher loadings of platinum and/or palladium.
"Rhodium's high price is incentivising fabricators to investigate the substitution of rhodium in autocatalysts," Heraeus said.
"Given today's more stringent NOx emissions standards, that might be more challenging than in 2008 when rhodium first traded above $10,000/oz."
Heraeus Precious Metals' rhodium industrial price stood at $26,250/oz, up 1% on Feb. 24.