Rhodium to Rise as Much as 35% on Cars, Mining Outlook, Standard Bank Says
Rhodium will climb as much as 35 percent to $2,800 an ounce by the end of the year on increased carmaker demand and production difficulties for mining companies in South Africa, according to Standard Bank Plc.
The metal, mainly used in car pollution-control devices and in the chemical and glass industries, is mostly produced as a byproduct of South African platinum mining. Gains in the rand versus the dollar in the past year helped increase local costs for producers facing rising wages and higher fuel and electricity prices.
“Demand has improved, mainly from automakers, but it’s also because of the supply side of the equation,” Standard Bank analyst Walter de Wet said in an interview in London. “Costs have been rising pretty fast in South Africa. Miners are really struggling because of the strong rand and rising costs.”
While rhodium is down 14 percent this year after three annual surpluses, record car sales in 2011 as estimated by Oxford, England-based J.D. Power Automotive Forecasting may boost demand. Prices gained 21 percent in the week after Deutsche Bank AG introduced a physically backed exchange-traded product for the metal in May.
Rhodium traded at $2,075 an ounce by 6:13 a.m. in London, according to data from metals refiner and researcher Johnson Matthey Plc on Bloomberg. Prices rose as high as $10,100 in 2008, a year after demand climbed to the highest level since at least 1984, Johnson Matthey data show.
More Expensive
Rhodium may account for about 10 percent of an average mine’s output in South Africa, compared with about 30 percent for palladium and 60 percent for platinum, de Wet said. While, less rhodium is produced, it’s more expensive than palladium and so accounts for a “reasonable” amount of revenue for miners, he said.
Palladium will be 17 percent higher at $950 an ounce in the fourth quarter and platinum at $1,900 an ounce, indicating a 3.8 percent increase, he said. The South African currency last traded at 6.805 to the dollar, compared with 7.685 a year ago.
“With rhodium at $2,000 an ounce and the rand below 7 per dollar, a big part of miners’ revenue stream has been depleted,” de Wet said. “There’s been a massive underinvestment in platinum-group metals, not really any capex expansion.”
Auto Sales
Total rhodium demand climbed 22 percent to 873,000 ounces last year, halving the metal’s surplus to 114,000 ounces, Johnson Matthey said last month. Global car sales will rise 5.1 percent to 76 million this year, J.D. Power said in May. Autocatalysts have honeycomb-like surfaces that convert emissions into carbon dioxide, water and nitrogen.
Deutsche Bank listed the DB Physical Rhodium ETP on the London Stock Exchange on May 24, according to information on the bourse’s website. The security has a market capital of about $4.41 million, Bloomberg data show. That would buy about 2,125 ounces of the metal. Rhodium fell 12 percent since peaking at a six-week high of $2,350 an ounce on May 31.
“If it takes off, it could push prices easily higher,” de Wet said of the ETP. “A big fund could put aside a little bit of money and get a lot of ounces, but I wouldn’t buy rhodium just because of that.”
To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net
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