Stricter rules on car emissions have helped drive a dramatic rally in rhodium, a niche metal used in catalytic converters, in the latest sign of how the environmental agenda is reshaping commodity markets.
Car companies in Europe and China are using ever more rhodium to meet tougher clean-air legislation, at the same time as supply from South Africa, the biggest producer, has been disrupted by the spread of Covid-19.
Assisted by the economic recovery in China, the world’s largest car market, benchmark prices for rhodium have hit a record of $17,790 an ounce, up more than 200 per cent since their March 2020 low. That means one kilogramme of rhodium is worth almost half a million pounds.
“You have a massive scramble for metal” by car companies, said Nicholas Hops, co-manager of the Coronation Resources Fund. “If you don’t have sufficient rhodium you can’t meet the emissions legislation and we know how draconian those fines are.”
That has propelled shares of the largest rhodium producers, with Johannesburg-listed Northam Platinum’s market value rising almost 300 per cent since its March low. Impala Platinum is up more than 280 per cent.
Rhodium is used alongside precious metal palladium to absorb harmful emissions such as nitrogen oxides from car exhausts. The hard silvery metal is mined alongside palladium and platinum, mostly in South Africa. About 1m ounces was used in car catalysts last year.
Phoevos Pouroulis, chief executive of Tharisa, a South African miner listed in London, said the focus on reducing nitrogen oxide meant the motor industry would need even more rhodium, which was in increasingly short supply.
“Unlike platinum and palladium, rhodium is a lot less amenable to substitution,” he said
“Nothing is as efficient as rhodium when it comes to [removing] nitrogen oxides,” added Karolina Jackiewicz, a trader at Lipmann Walton & Co. “It can’t be easily substituted.”
The price run for the metal comes despite the fall in global car sales last year, estimated to be a fifth lower. But that has been outweighed by greater use of rhodium to meet stricter “real world” emissions tests, according to Joseph Stefans, head of trading at precious metals trader MKS Switzerland, said.
The EU has said that cars will need to meet limits on NOx emissions in on-the-road driving tests, rather than in tests in a laboratory, by September 2022. China has also introduced stricter emissions standards for passenger cars, set to come into force in January.
“The rollout of [China’s standards] has resulted in a material increase in the amount of rhodium per car,” said Nikos Kavalis, Singapore-based managing director of consultancy Metals Focus. “China’s imports of rhodium were very low for a while but they’ve ratcheted up.”
Combined imports into mainland China and Hong Kong last year through to November rose 17 per cent compared with the same period in 2019, he said.
In addition, car sales in China have rebounded in recent months. Sales of passenger cars in 2020 are estimated to have been 7 per cent lower than in 2019, according to the country’s passenger car association — a milder impact than some had feared.
“The market thought that Covid was going to have a much bigger impact on the automotive industry than it has,” Mr Stefans said. “The forecasts were extremely bleak in March and April but now the numbers coming through have surprised in terms of how robust they are.”
Supply of rhodium was disrupted last year following a strict coronavirus lockdown in South Africa in March. In the same month, Anglo American Platinum, the largest producer of rhodium, was forced to shut down a processing plant after an explosion a month earlier.
In November, Anglo American said it had closed a unit of the processing plant after a series of water leaks. The shutdowns meant the company had to pay to lease rhodium to meet customer demands, according to analysts, which has boosted prices even further.
As a result, supply of rhodium was about 25 per cent lower in 2020 than in the previous year, Ms Jackiewicz estimated.
There has been little investment in new mines in South Africa over the past decade because of low platinum prices, with analysts forecasting the market will have a shortage by 2025. Mr Hops estimated that by 2025 the global supply gap could be up to 235,000 ounces, out of a total market of 1.37m ounces.
“Even if you gave me R10bn today and said ‘go sink me a new shaft’ you wouldn’t have much saleable [metal] in five years' time,” he said. “There’s a unique period where supply has an inability to respond. It’s really going to be quite tough to solve it from a supply side.”
But in the longer term, the same trend that is lifting the market could send it into a brick wall.
Broader take-up of electric cars, which require no exhaust or catalyst, provides a big threat to demand, analysts said.
“That’s the only way to alleviate the demand for rhodium,” Mr Stefans said. “But I think it’s going to take a while. You’re probably going to see rhodium at prices around these levels for the foreseeable future.”
Additional reporting by Neil Hume
The story has been updated since publication to make clear that the data for China’s rhodium imports ran to November 2020, not October
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