Rhodium, the scarcest precious metal used in making catalytic converters, is outperforming platinum and palladium for the first time in seven years as global car sales rise to a record.
The metal, used with palladium and platinum in pollution-control devices, rose 16% this year, about three times the increase of the other two ingredients and 20 times more than the benchmark commodities index. Output will trail demand for four more years after the first deficit since 2007 last year, eroding inventories, Standard Bank Plc’s SBG Securities (Pty) Ltd. unit forecasts.
Prices are climbing because global car sales will rise 2.7% to 83.1 million this year, according to LMC Automotive Ltd., a research company in Oxford, England. Stricter emission laws will require even more of the metal. Rhodium will climb another 10% to average $1,375 an ounce in the fourth quarter and $1,550 next year, the median of eight analyst estimates compiled by Bloomberg show.
“You haven’t had another year of surpluses adding to the stockpiles,” said Grant Sporre, an analyst at Deutsche Bank AG in London. “As that inventory comes down, the price will gradually start easing upwards as rhodium becomes a little bit more difficult to get hold of.”
Prices rose to $1,250 in London this year after falling to $1,080 on Dec. 14, the lowest since January 2009, according to Johnson Matthey Plc. Platinum is up 3.3% to $1,590.50 an ounce this year while palladium has advanced 4.4% to $734.83. The last time rhodium outperformed both metals at this time of the year was in 2006.
The Standard & Poor’s GSCI index of 24 commodities added 0.8 percent since the start of January and the MSCI All-Country World Index of equities rose 4.5%. Treasuries lost 0.4%, a Bank of America Corp. index shows.
Palladium will advance 12% to an average $825 in the fourth quarter and platinum will jump 11% to $1,770, according to the median of 11 analyst estimates compiled by Bloomberg.
About 80% of rhodium is used in catalytic converters and the rest is mainly for glass-making equipment and chemical manufacturing, according to London-based Johnson Matthey. Total demand will rise 6.1% this year and 7.9% in 2014, SBG Securities said in a Jan. 29 report. Some 81% of supply comes from South Africa and is mined with platinum and palladium.
The glass industry cut consumption to a 14-year low of 19,000 ounces in 2009, a year after prices climbed to a record. Demand will rise 4.9% in 2013 and climb every year to 96,000 ounces in 2016, according to SBG.
Rhodium slumped 88% from a record $10,100 set in 2008 as manufacturers cut the amount used in each autocatalyst and increased recycling to reduce costs.
Even after this year’s gains, rhodium’s premium to palladium fell to $515, about 95% less than the difference in 2008. It trades at a $340 discount to platinum, compared with a premium of $8,007 in 2008.
“We like the fundamentals and we do see rhodium prices going higher,” said Justin Froneman, an analyst at SBG in Johannesburg. “The absolute demand for rhodium will continue. It’s coming off a low base.”
Rhodium is less available than other precious metals. About 21 metric tons will be mined this year, compared with 182 tons of platinum and 202 tons of palladium, according to SBG. The volume of shares traded in Deutsche Bank’s rhodium-backed exchange-traded product in London in the past year is less than 2% of the amount for ETF Securities Ltd.’s platinum and palladium products in the city.
Deutsche Bank introduced the ETPs since May 2011 in London and Frankfurt and they now hold 62,400 ounces valued at about $78 million, according to data from the Frankfurt-based bank. That compares with the 1.66 million ounces of platinum and 2.16 million ounces of palladium held in ETPs globally, data compiled by Bloomberg show.
Older cars now being scrapped will add to supply. Recycled metal will jump 11% this year and keep climbing through 2016, SBG predicts. Europe’s fading debt crisis still poses a risk to demand. European Union car sales fell to the lowest level for a January in at least 23 years, the Brussels-based European Automobile Manufacturers’ Association said Feb. 19.
“The economic recovery hasn’t fed through yet,” said Robin Bhar, an analyst at Societe Generale SA in London. “There are sufficient above-ground stocks so it’s not a market that should tighten up appreciably.”
The International Monetary Fund predicts global growth will climb to 3.5% this year from 3.2% in 2012, even as it sees a second year of contraction in the euro area.
Carmakers will boost rhodium demand by 8.4% to 841,000 ounces this year, rising to 930,000 ounces in 2014, SBG estimates. The metal converts nitrogen oxides, blamed for acid rain, into nitrogen and oxygen. So-called Euro 6 legislation from next year will require even less nitrogen-oxide emissions from some vehicles.
Continued shortages are needed to erode almost 500,000 ounces of above-ground stockpiles that were accumulated from 2008 to 2011, Deutsche Bank said in a Jan. 16 report. The bank expects that overhang to last until 2019.
Baird & Co., a U.K. precious-metals dealer, sold about 10,700 1-ounce rhodium bars since May, or more than 10 times the amount planned when production began in May 2012, Tony Dobra, a director, said in a Feb. 20 interview. The London-based company expanded with bars that weigh 1/10 an ounce to 5 ounces to meet increased demand.
“At the moment we can’t make them quick enough, so we are stepping up production,” Dobra said. “The market is so thin that it just needs a car company to buy a year’s worth of production or a hedge fund to pull out a little bit of loose change. It doesn’t take a lot to create quite sharp price movements.”