Rhodium, the world’s most precious metal, reached $20,190 an ounce on Wednesday, up from $16,990 on Dec. 31 and as low as $615 in 2016. Rhodium’s rally to record highs shows no sign of stopping, with prices up 19% this month as automakers that need the metal to meet tightening emissions regulations run into limited supply.
Prices have risen by 3000% in five years and just 1.5 kilograms of rhodium now costs almost $1 million.
Why is Rhodium the most expensive metal on earth?
Rhodium is used in jewelry making to the scratch-resistant, reflective surface. Rhodium plating is most commonly seen on white gold. Although it is not a monetary precious metal, it still has some value due to its rarity and many uses. It’s used in engine exhausts to neutralize harmful nitrous oxides. Automakers consume around 85% of rhodium. Sales in China, the biggest market, are forecast to grow this year after only a slight dip in 2020, and emissions regulations tighten again in 2023.
“There’s been a load of buying in advance (of that deadline),” said StoneX analyst Rhona O’Connell.
The covid-19 pandemic, meanwhile, tightened the market, with lockdowns and outbreaks disrupting mining and transport in South Africa, the top producer.
This, along with outages at processing facilities run by Anglo American Platinum (Amplats), reduced total rhodium supply by 16% last year, said Wilma Swarts at specialist consultancy Metals Focus.
That compares with a 10% fall in demand, creating a shortfall in the roughly 1 million oz a year market that will continue in 2021 and is likely to drive prices higher, Swarts said.
Amplats has repaired its operations, but rising coronavirus cases in South Africa threaten further supply disruption, said Heraeus, a major producer, and trader.
Rhodium’s Smaller Market and Price Volatility
Stricter emission rules over the last decade have caused the price of rhodium to consistently go northwards. In the last five years, rhodium has outperformed all other major commodities with its price rising by 30x. However, note that this is a much smaller market and the price remains largely volatile due to massive shifts in supply and demand.
Rhodium has been in deficit for most of the last decade, driving down inventories and allowing periods of strong buying to tighten the market and drive up prices, said Rohit Savant at consultants CPM Group.
On an annual basis, the market saw a small surplus last year and will again in 2021, he said, predicting that prices would dip when the traditionally strong start-of-year demand period slackens.
“But going forward, you are likely to see a continued narrowing of surplus and potentially deficits again.”
The use of rhodium may eventually decline as combustion engines are replaced by batteries to power vehicles, but analysts expect this process to take many years.
Anton Berlin, head of analysis and market development at Russia’s MMC Norilsk Nickel PJSC said that “rhodium is subject to crazy volatility”. The Russian company contributes to mining 10% of all the global rhodium. Anton noted that the supplies are tight and speculators bought it heavily last two years seeing industrial volumes growth.
So far, in 2021, rhodium seems to have left behind its peers by a huge margin. Palladium, silver, and gold are still lagging but I believe will follow the trend and most likely will break their 2020 highs.
Unlike other precious metals like gold and silver, investing in rhodium is difficult as it doesn’t trade on exchanges. Most of the rhodium deals happen between suppliers and industrial users only. South Africa has dominance in the rhodium market as it alone accounts for 80% of the global rhodium production.