Rhodium supply shock reverses market rout

South Africa suspended mining operations for three weeks at midnight, sending rhodium prices soaring after a crash two weeks earlier, highlighting the seesaw nature of markets in crisis.

"This is a tug-of-war on two levels, between supply and demand and between rational investment behaviour and herd mentality," a trading firm said. If production resumes as planned on 16 April, rhodium prices will fall on the low demand outlook for the automotive industry. But trying to predict where they could settle is futile in this environment, market participants said.

Rhodium prices were elevated before the global coronavirus pandemic sent markets into panic. Its main use is in catalytic converters for gasoline vehicles to turn toxic nitrogen oxide emissions into harmless nitrogen and oxygen. Global production of just 1mn troy ounces (toz)/yr (31 t/yr) is concentrated among a few producers in South Africa, and refining the metal is expensive and technically complex. For many years, it was regarded as not lucrative. Tougher vehicle emissions restrictions around the world and the impact of the Volkswagen diesel emissions scandal gave rise to an unexpected surge in demand for the metal, which has no effective substitutes. So when rhodium demand and content per vehicle shot up, so did prices, rising from $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, before peaking at $13,800/toz on 12 March, based on price quotes from UK specialty chemical producer Johnson Matthey (see chart).

UK-Australian mining firm Anglo American in February warned that the high prices were looking unsustainable. "What rises quickly can fall twice as quickly," chief executive Mark Cutifani said on 20 February. He was proven right. When financial markets crashed, so did rhodium prices, plummeting from $13,800/toz on 12 March to $5,500/toz on 24 March. But just as the price direction started to look clearer, buyers had to scramble to secure the metal to support catalyst production before the start of the mining shutdown last night, bringing prices back up to $10,500/toz today.

Rhodium has been one of the world's most volatile metals recently. But many metal markets are facing the same dilemma — short-term supply problems as mines suspend production, air and sea freight costs jump, logistics deteriorate and a bleak demand outlook. And a lot of uncertainty in between.

By Caroline Messecar

Rhodium min 99.9pc du Rotterdam Johnson Matthey