Rhodium prices are nearing the level at which they peaked and crashed in June 2008, but this time the fundamentals may prove more forgiving — for now.
Prices for 99.9pc rhodium metal spiked by 66pc in 28 days (see chart) to $10,025/troy ounce (toz) today, according to price quotes from UK specialty chemical producer Johnson Matthey. The rise is clearly unsustainable, but some of the factors that brought it there remain.
Rhodium is used with palladium in catalytic converters to remove toxic emissions from gasoline-powered vehicles. It is by far the most expensive of the two metals, but also far better at breaking down nitrogen oxide into harmless nitrogen and oxygen gas. And it has a much smaller supply base. Global production of rhodium is about 1 mn toz/yr (31 t/yr), 80pc of which is produced in South Africa, compared with more than 6 mn toz/yr of palladium.
On 18 September 2015, when the US Environmental Protection Agency issued a notice of violation of the Clean Air Act to German automaker Volkswagen, the start of what was to become known as the Dieselgate scandal, the price of rhodium was $765/toz.
As events unfolded, the scandal created a paradoxical situation in which demand for more effective gasoline catalytic converters kept rising while vehicle production and sales were falling all over the world. By September last year, the market share of new gasoline passenger cars registered within the EU had risen to 60pc,from 51pc two years earlier. The market share of diesel had fallen to 31pc from 43pc in September 2017, according to data from the European Automobile Manufacturers' Association. Emissions standards are rising all over the world, including in China, which in July will introduce a China 6 standard that is similar to the EU.
Rhodium prices rose to $1,715/toz by the end of 2017, to $2,460/toz by the end of 2018 and to $6,075/toz by the end of last year. Palladium prices have also risen, up by more than 70pc in 12 months.
Demand cannot keep rising at the same pace and no business planner could have been expected to predict the emissions scandal. Tiny markets are extremely volatile and the hunt for substitutes has just been made profitable. In 10, 20 or 50 years, the picture might look very different, which could explain the extraordinary force that pushed up rhodium just as the market for 90pc of the world's passenger cars became a little more interesting.
By Caroline Messecar
