Are rhodium prices set for sharp move higher?

According to analysis from Deutsche Bank and Johnson Matthey global demand for the metal is poised to exceed supply by 78,000 oz this year, the most since at least 1984. Deutsche forecasts that supply will drop 0.7% this year while consumption is expected to rise 5.8%. Furthermore global demand is expected to exceed supply every year through 2020, with a shortfall of 530,000 oz accumulated during that period.

As we noted back in October with rhodium prices at the cheapest relative to platinum and palladium (both metals are also used in catalytic converters) car manufacturers may look to substitute towards cheaper alternatives. Rhodium prices reached a floor of $890 per oz in December before rising by 18% to $1,050 per oz currently.

Related article: Rhodium slump to end on higher substitution demand

In the past rhodium has generally been characterised by inelastic supply with higher demand resulting in sharply higher prices. However with automotive replacement cycles set to accelerate over the next few years, particularly in Europe significant supplies are likely to come from recovering rhodium from old catalytic converters. According to Morgan Stanley recovery from old catalytic converters will rise 1.4% this year and 9.1% in 2015, reaching 311,000 oz or enough to meet 36% of what car companies need.

Labour unrest in South Africa remains a significant supply-side risk though. The metal is mined alongside platinum and palladium, with about 80% of production coming from South Africa, according to Johnson Matthey. Deutsche Bank forecasts rhodium output from South Africa will fall by 5.7% in 2014, dragged lower by the recent strike action. With elections due in May there is potential for further disruption in coming months which could lead to rhodium stockpiles disappearing quicker.

Related article: Global stockpile weighs on platinum prices despite strike


Global stockpile weighs on platinum prices despite strike

Talks to end a strike that has crippled production at South African platinum mines are now set for Friday (14th Feb). More than 70,000 miners represented by the Association of Mineworkers and Construction Union have called out on strike since 23rd January demanding that monthly wages for the lowest paid underground workers be more than doubled to 12,500 rand ($1,130). The mining companies offered increases of as much as 9% for workers who are currently paid 5k-6k rand per month, excluding benefits.

Related article: Four key risks for industrial platinum users

Platinum prices rose by around 6% at the start of 2014 as fears of a strike grew but since the start started prices have lost most of their gains and are now up just 2% at $1,391 per oz. Compared to the last widespread strike to hit the country’s platinum industry in August 2012 prices are currently over $300 per oz lower.

Related article: What impact will Marikana unrest have on platinum price?

South Africa accounts for 90% of global platinum mine output with the strike hitting over 40% of global output of the precious metal. However, the strike is unlikely to affect significantly affect prices. Not yet anyway. According to Citigroup existing available global platinum stockpiles (excluding ETF holdings and stocks held by fabricators) could satisfy demand for more than nine months before they run out (download note here).

With elections due in May expect further potential disruption in coming months. However with several months supply available in stocks and platinum forecast to be in surplus by over 200,000 oz in 2014 there is unlikely to be a significant upside to prices. Citigroup projects platinum prices to average $1,575 per oz in 2014Q4, up by 13% compared with 2013Q4 levels.