This silver-white metallic element is highly reflective and strongly resistant to corrosion, making it a sought-after commodity for various industries. In this article, we’ll explore the origins of rhodium, its applications, the factors contributing to its high price, and the potential implications for investors.
The Origin and Discovery of Rhodium
Rhodium is one of the six Platinum Group Metals (PGMs), alongside platinum, palladium, osmium, iridium, and ruthenium. It was discovered in 1803 by English chemist William Hyde Wollaston, who extracted the element from a piece of platinum ore from South America. Rhodium’s name is derived from the Greek word ‘rhodon,’ meaning rose, which refers to the red color of the metal’s salts.
Rhodium is considered the rarest and most valuable precious metal in the world, far surpassing gold or platinum in terms of scarcity. It occurs at roughly 0.000037 parts per million in the Earth’s crust, making it extremely rare and challenging to mine.
Supply and Production of Rhodium
The majority of rhodium supply comes from South Africa, which accounts for over 85% of global rhodium supply annually. The other significant producer of rhodium is Russia, with the rest of the world contributing only a small fraction of the total output. The metal is primarily mined as a by-product of platinum and palladium mining or nickel mining, and there is no such thing as a primary rhodium mine.
The supply of rhodium is inelastic to demand, meaning that if demand increases, there is no quick way to ramp up production or supply. This is mainly due to the extreme rarity of rhodium content in the Earth’s crust and the challenges in mining and extracting the metal. Additionally, the geopolitical factors in South Africa and Russia may also impact the supply of rhodium, making it even more limited and valuable.
Applications of Rhodium
The primary use of rhodium is in automotive catalytic converters, where it reduces the amount of nitrogen oxides (NOx) exhaust gases emitted into the atmosphere. In 2019, almost 90% of rhodium demand came from the auto-catalyst sector. Rhodium is exceptionally effective at converting NOx into harmless gases, making it the metal of choice for NOx control.
Apart from its use in auto-catalysts, rhodium is employed in various other industries, albeit to a lesser extent:
As a catalyst for producing nitric and acetic acids in the chemical industry
As a protective coating on jewelry pieces to prevent scratches and tarnishing
As a glass strengthening alloy, making glass more durable and resistant to breakage
The Role of Rhodium in the Automotive Industry
Rhodium’s primary application in the automotive industry is in the manufacturing of catalytic converters. These devices are critical in reducing harmful emissions from vehicles, helping to combat air pollution and meet stringent environmental regulations. As countries around the world, including Europe, the US, India, China, and Japan, have committed to reducing their toxic emissions under the Paris Agreement, the demand for rhodium has surged.This growing demand from the automotive industry coincides with a supply deficit in the rhodium market. According to British multinational speciality chemicals company Johnson Matthey PLC, the deficit in the rhodium market doubled in recent years as primary supplies contracted. This supply-demand imbalance has contributed to the soaring prices of rhodium.
Rhodium’s Price Performance
Rhodium’s rarity and its vital role in reducing harmful emissions have led to a strong price performance in recent years. The metal currently trades at over US$7,950 per ounce, making it around four times more valuable than gold.
Rhodium’s price has experienced significant fluctuations, with a phenomenal rise since 2019. It moved from below $3,000 per ounce in January 2019 to $17,000 per ounce by December 2020, according to Johnson Matthey. Despite a temporary dip in March 2020 due to the COVID-19 pandemic, rhodium prices have continued to climb, reaching record highs of over $29,000 per ounce in 2021.
Factors Contributing to Rhodium’s High Price
Several factors contribute to the high price of rhodium:
Rarity: Rhodium is an incredibly scarce metal, making it difficult to mine and produce in large quantities. This rarity drives up its value compared to more abundant metals like gold or platinum.
Inelastic Supply: The supply of rhodium is inelastic to demand, meaning there’s no quick way to increase production if demand rises. This can lead to significant price spikes in times of high demand or supply disruptions.
Industrial Demand: Rhodium’s primary use in catalytic converters and other industrial applications creates a constant demand for the metal. As environmental regulations become more stringent worldwide, the demand for rhodium is expected to increase further.
Geopolitical Factors: The majority of rhodium supply comes from South Africa, with Russia being another significant producer. Political and economic factors in these countries can impact the supply of rhodium and contribute to its price volatility.
Rhodium in New Age Metals
The River Valley Palladium Project is one of the largest undeveloped PGM projects in North America. A 2021 Mineral Resource Estimate shows 2.25 Million ounces of palladium, platinum and gold at the measured and indicated level. The Company has launched a series of studies with the end goal of determining whether or not rhodium is a payable metal at the River Valley Project. To date, the highest rhodium assay was 0.306 grams per ton, with 33 more samples returned assays =0.100 g/t Rh and a total of 113 samples returned assays >0.050 g/t Rh. Rhodium concentrations in the River Valley deposits are equivalent to approximately 9% of Pt grades. Based on encouraging results from Phases 1 to 3 of the study, subsequent phases of this multi-phase Rh evaluation program will take samples of PGE mineralized intervals from more of the mineralized zones for assay analysis and PGE mineralogical studies.
Investing in Rhodium
Investing in rhodium can be a profitable venture for those who can afford it. Rhodium’s rarity, high price, and constant demand from the automotive industry make it an attractive investment option. However, the metal’s price volatility and limited supply can pose risks for inexperienced investors.
Investors can gain exposure to rhodium through several means, including purchasing physical bars or coins, or investing in mining companies focused on rhodium production. Some investors may also consider diversifying their precious metals portfolio by including rhodium alongside more traditional investments like gold, platinum, and palladium.
This in-house analysis of the rhodium market is not financial advice and should not be used to make financial decisions. We encourage everyone to discuss financial matters with their financial advisors.
The Future of Rhodium
The demand for rhodium is unlikely to decrease in the foreseeable future, as it continues to play a crucial role in reducing harmful emissions from vehicles. However, the high price of rhodium may eventually lead to a decline in demand as manufacturers explore alternative materials or increase the use of palladium and platinum in catalytic converters.
The scarcity of rhodium, coupled with its increasing importance in the automotive industry, suggests that its price will remain high in the coming years. Investors seeking exposure to rhodium should be aware of the potential risks and rewards associated with this rare and valuable precious metal.
Source: Market Screener