A recovery in global auto sales and tightening emissions standards have driven rhodium prices to dizzying levels over the last month, propelling platinum to levels not seen in a decade.
Last month autocatalyst manufacturer Johnson Matthey said the rhodium demand of roughly 1 million ounces a year was under-supplied by 84 000 ounces in 2020, and that shortfall will likely continue in 2021 as global vehicle sales are expected to record a sharp bounce after a slump in 2020.
Global car sales are expected to rise almost 9% in 2021 after recording a 15% decline in 2020 as a result of Covid-related disruptions.
Rhodium, palladium and platinum are essential in cleaning exhaust emissions in vehicles. Rhodium is also used to reinforce glass for consumer electronics products. It accounts for a relatively small proportion of total mining output, but is a significant cash earner due to rising demand and prices.
Platinum prices are down by nearly half over the last 12 years, having been eclipsed by what were previously considered by-product metals – rhodium and palladium. Ironically, platinum fell victim to its own success, having traded at a high of over $2 200/oz in 2008 during the commodity super-surge.
Rhodium, once a relatively minor part of the platinum group metal (PGM) basket, is now a game changer, and a key factor behind the surge in platinum share prices in recent months.
A year ago rhodium traded at $13 000 an ounce, but this week it tore through $28 000/oz on the spot market, more than doubling in price over 12 months due to the rebounding auto market and a scramble by major producers in the US, Europe and Asia to secure supply in a tight market.
Rhodium, Platinum and Palladium prices
Source: Share Magic
Royal Bafokeng Platinum’s share price is up 553% from its March 2020 low. Its 2020 annual results are due out next week, and the market is expecting a maiden dividend from the platinum producer, adding a bit of extra spice to the price move. Impala Platinum (Implats) is up 380% and Anglo American Platinum (Amplats) 354% over the last 12 months.
SA is the world’s major source of PGMs and the Covid-related disruption to supply in 2020 accounts for the supply shortage in all three metals. Johnson Matthey says the 7 million to 8 million-a-year platinum market was undersupplied by nearly 400 000 ounces in 2020, while the 10 million-ounce-a-year palladium market was under-supplied by about 600 000 ounces.
Supply was further hit by an explosion at an Amplats processing plant in 2020, which contributed to a 42% drop in refined production for the last financial year. Overall PGM production was down 14% to 3.8 million ounces.
Implats rebounded sharply after the shutdown earlier in 2020, reporting a 29% increase in production over the same period in 2019. Though rhodium accounts for a small percentage of total ounces mined, it has an outsized impact on overall financial results.
Royal Bafokeng Platinum share price
Source: Share Magic
The average price achieved for rhodium sales at Implats for the six months to December was $12 454/oz, a figure which will be substantially higher in the current period.
Implats v Amplats share price
Source: Share Magic
The last super-cycle in platinum shares ended in 2008; shares then entered a steady decline over the next seven years. The market bottomed in 2018 and has been on a tear since then.
Impala still has some headroom to recover to its previous all-time high of R33 000 reached in May 2008, but Anglo Platinum has been breaking new all-time highs in the last two months.
Capital.com argues that the recent momentum in the platinum price is partly due to vaccination efforts worldwide, which will allow a return “to some form of normality.”
Nor is it likely that the emergence of electric vehicles will dislodge demand for platinum. Hybrid cars will be around for decades, and electric vehicle sales are only expected to surpass that of fossil-fuel cars by 2038, which means demand for platinum (and other PGMs) will be around for some time yet.