Rhodium's Radical Rise: Palladium Pales in Comparison

Last week, Bullion Exchanges reported on the recent increase in the price of palladium. Now we turn our focus to another precious metal making waves in the market- rhodium.

What is Rhodium?

Like palladium, rhodium is a member of "PGM" - Platinum Group Metals. This silvery-white metal shares similarities with group members palladium, ruthenium, iridium, osmium, and of course platinum. William Hyde Wollaston, an English chemist, discovered this precious metal in 1803 shortly after discovering palladium. This highly reflective metal is characteristically hard and durable. With a lower density and higher melting point than platinum, it can be used for a variety of applications.

What Is It Used For?

Rhodium is incorporated into the composition of many industrial and electronic products. Primarily used in automobiles as a catalytic converter, this precious metal also serves a decorative purpose.  It coats sterling silver to protect from tarnishing, and jewelers layer it into gold and platinum (known as "electroplating") to give jewelry a reflective white finish. Additionally, rhodium serves as an alloying agent utilized in glass fiber production, electrical contacts, electrodes for aircraft spark plugs, and also in laboratory crucibles. Auto manufacturers also use it in the construction of headlight reflectors. Clearly, rhodium serves an important role in numerous industries. This explains why this metal remains in such high demand.

Sourcing the Magnificent Metal

Miners and refiners struggle to find naturally occurring ore bodies that provide a cost-effective source of rhodium. Its extraction commonly occurs as a byproduct of platinum and nickel mining. The process of sourcing this metal proves extremely time-consuming and difficult, with only a few companies able to successfully mine, refine, and sell this valuable alloying agent. The top rhodium sourcing companies include Anglo American Platinum Ltd (Amplats), Impala Platinum (Implats), Norilsk Nickel, and Lonmin. Notably, these companies all operate out of either South Africa or Russia. Back in 2014, the industry saw a huge decline in rhodium production due to a six-month-long workers strike in South Africa that halted work at many PGM mines.

Rhodium's Wild Ride

Unsurprisingly, due to rhodium's high demand and dwindling supply, recent years saw the market price for this metal increase exponentially. Analysts saw a similar price spike back in the 1980’s. Rhodium rose from around $700 per ounce in 1980 to $1643 per oz in December 1989, following a brief mid-80's dip. This upward trend continued in the early 1990s when rhodium’s value increased to over $5000 an ounce. Pundits attribute this climb to a supply shortage as well as nervous industrialists stockpiling the metal. Subsequently, the price dropped over the next few years to a little over $200 an ounce.  Analysts hypothesize that the significant price increase from $500 an ounce in 2003 to around $10,000 an ounce in 2008 drove carmakers to drastically lessen the amount of rhodium they used. This sharp supply cut created the next major nose-dive, with rhodium’s value falling to around $1,000 an ounce- a $9,000 drop! 

The Roller Coaster Resumes

Starting in 2017, investors saw rhodium prices gradually start to increase yet again. Since then, the value of this silvery metal jumped from around $700 an ounce to the present $9000 an ounce. Prices have risen over 63% this year alone, and show little sign of plateauing. Industry analysts scramble to make sense of this remarkable rise and continually speculate about what the future holds for all players involved.

Analyzing the Data

Precious Metals pundits widely agree that the main beneficiaries of this increase are the companies that source and refine the precious metal. This includes Russian owned Nornickel as well as the South African corporations who specialize in mining Platinum Group Metals. Similar to palladium, rhodium is widely used in the auto industry, so the higher prices car manufacturers pay for their supply will most likely be passed on to consumers. Carmakers are therefore seeking to use less of these metals in the manufacturing process.

What It Means for Investors

Reports from analysts indicate rhodium prices are expected to remain high this year, as long as the demand for this alloy stays high. If the pattern repeats itself, those looking to buy rhodium might see another dip in price, followed by an upswing. Conversely, other analysts claim the price may not decrease at all in the near future. One thing most experts seem to agree upon? Rhodium’s value continues to keep everyone on their toes.

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