Unlike in 2008, the global recession is not resulting in much easing of rhodium demand as the drive to reduce NOx emissions in Europe and China is leading to a sharp increase in loadings, which is helping to offset the drop in auto sales. Car sales in China, the largest auto market and where the tightest standards are being promulgated, have rebounded faster than expected since the Covid-19-induced slump at the start of the year. Demand is expected to slip by 14% (-47 koz) this year, but with supply impacted more than demand, the rhodium market deficit is expected to widen.
Rhodium reached a record high price of $14,750/oz last week, marking its third major price rally in recent history. Shown in the chart below, key upward movements occurred in 1990 and 2008, where the price peaked at $9,655oz and $11,890/oz respectively. In 1990, the commissioning of a new refinery in South Africa drove the rhodium price up as industrial users began stockpiling the metal. In 2008, South Africa experienced widespread rolling blackouts and miners were forced to temporarily cease production, causing rhodium supply to fall -5% (-34 koz) year-on-year. However, in the same year, the financial crash led to a contraction in demand which reduced the rhodium market deficit significantly.
The rhodium price started 2020 with a sharp increase, supported by strong consumer demand and tight physical availability. The impact of Covid-19 on the precious metals market saw an extreme sell-off in March but the price has recently rallied to higher highs as demand, particularly in China, has rebounded faster than metal supply. The impact of mine closures (owing to Covid-19) on metal supply was magnified by the temporary closure of Anglo American Platinum’s ACP earlier in the year, which is likely to have to led to a build-up of more than 30 koz rhodium in green matte. The build-up of stock is expected to be processed over the next 18 months, with the likelihood that it will be processed sooner rather than later. However, it will be a slow process before the metal is released from the refinery. The cumulative effect of mine closures and the ACP shutdown will still see South Africa’s rhodium supply contract by an estimated ~20% in 2020.
History has shown that rapid price gains are unsustainable, but is this time different? Rhodium is integral to removing harmful NOx emissions in autocatalysts, but supply is not expected to keep up with demand (unless mothballed mines in South Africa restart); moving forward, the rhodium market is expected only to tighten further. With no effort to balance the ratio of supply to demand, high prices will be sustained.