With a more than 30% jump in prices so far this year, rhodium now costs more than twice what gold or palladium do. Despite that, the precious metal hasn’t attracted much attention from investors.
Rhodium, which is corrosion resistant and used in vehicle catalytic converters and as an electrical contact material, has climbed beyond a 10-year high to $3,300 an ounce as of Friday, up from $2,460 at the end of 2018, according to data from specialty-chemicals company Johnson Matthey. That per-ounce price compares to $1,307.30 for gold GCJ9, +0.38% and a near record $1,557.90 for palladium PAM9, -2.73% futures on Thursday.
“Rhodium prices of less than $1,000 [an ounce were] far too cheap for such a rare and useful commodity,” said Hans-Guenter Ritter, global head of trading for Heraeus Precious Metals. Rhodium prices fell under $1,000 as recently as August 2017, according to Johnson Matthey.
“A price somewhere between $2,500 and $3,500 [an ounce] is fair value depending on demand pull, the platinum price, and rand-dollar exchange rate,” given that mine supply is “very highly concentrated to South Africa,” said Ritter.
Automotive catalytic converters, which control exhaust emissions, make up the bulk of demand for rhodium. The metal provides a “tiny chemical key in the catalytic convert mix to unlock the cleaner air coming out of a tail pipe,” said R. Michael Jones, chief executive officer of Platinum Group Metals Ltd. PLG, -3.50% “Sadly for the world, there are zero…primary rhodium deposits in the world.”
“Produced as a byproduct of nickel and platinum mines, the global supply of rhodium has little ability to respond to the world’s needs with more production,” he said. “Rhodium is only 10% of the metal balance in the best deposits on earth so if the price goes from $1,000 to $3,000, nothing happens.” Production can’t simply be increased.
Earlier this month, Fiat Chrysler Automobiles FCAU, -3.20% said it was recalling 862,520 of its vehicles in the U.S. Catalytic converters are among the parts that need to be replaced because some of the vehicles failed to meet federal emissions standards. That fed expectations for rhodium demand, contributing to a 17% month-to-date price rise. “Demand is going to stay strong,” and if Fiat Chrysler continue to need more, “we will see $4,000 again in rhodium,” said Peter Thomas, senior vice president at metals broker Zaner Group. Rhodium last traded at that level in 2008, the same year it peaked at more than $10,000 an ounce.
Despite the metal’s rarity, however, it “falls under the radar [of investors] compared to palladium and gold due to its lack of market liquidity and very small market size,” said Ritter. “Very small investments can sometimes lead to meaningful movements in the price and while you are able to invest in rhodium, it may not be so easy to find a willing buyer when you want to exit,” he notes.
The market for the metal is only 1.1 million troy ounces, or about 34 metric tons of annual demand, he said. That makes it about 10% of the palladium market, about 15% of the platinum market, and less than 1% of the size of the gold market.
“Some refiners produce rhodium bars for investors,” said Ritter. “Premiums are high when buying, discounts are significant when selling.” Rhodium coins are also produced in the South Pacific island of Tuvalu, he says.
Zaner’s Thomas suggests PAMP Suisse rhodium bars from a well-established precious-metals dealer. The one-ounce bars currently sell for more than $3,200.
There is no futures market for rhodium, but there are a few exchange-traded products, including the Xtrackers Physical Rhodium ETFXFRD, +0.78% and AfricaRhodium ETF ETFRHO, -0.63%
Still, Ritter warns: “we would advise caution before considering rhodium as an investment. It is a small, illiquid and volatile market where swings in prices can be very sharp and it may not be easy to exit your holdings, so profits can turn to big losses very quickly.”
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