Rhodium – Commodity Analysis and Forecast

(Aidan Miao and Satvik Deolal) 

The commodities market is usually headlined by big players such as Gold and Silver. A metal that has recently been in the talks amongst traders is Rhodium. Rhodium is one of the rarest metals on the earth. It is so rare that it does not trade on the world commodities market.  The precious metal is one of the rarest and is mostly used in automobiles for catalytic converters, a part of the exhaust system to reduce emission. Demand for Rhodium has increased dramatically since booming Chinese and Indian markets are driving up the demand for car sales. Last year, China and Europe announced plans for carbon emission reduction, which is likely to cause a further increase in demand for Rhodium.  

The supply of Rhodium can not be controlled or react to market shocks like other metals such as gold and platinum, it is a by-product found in ores that contain nickel and platinum. It has a very small market-size, with 792,000 ounces in 2019, the nature of Rhodium price is one of volatility and uncertainty.  

Since 2010 the price of Rhodium has been relatively stable, trading around $1,000 per ounce until 2018 where the price started to increase, and skyrocketed in the end of 2019 and throughout 2020.  

This is likely due to the boost in hybrid car sales, which use catalytic converters to reduce emissions, and global economies setting new carbon emission regulations which drove up the demand.  

In 2018, hybrid car sales reached a record high across Europe, with hybrid car sales increasing by almost 400% in Denmark, and 100% in countries such as Ireland and Finland. The demand for hybrid cars in China, however, has not been as high as what we are seeing in Europe. Sales of hybrid cars in China rised steadily in 2018 by only 5%, which is largely due to a high demand for electric cars when it comes to new energy vehicles. In 2020, sales of new energy vehicles (NEV) is accounting for 20% of all car sales in China, and 95% are fueled by electric batteries. This number is estimated to go up to 50% by 2035, however no one is quite sure how much of those car sales would be hybrid vehicles.  

Another factor affecting the price would have been emission standards. In 2018, China’s Ministry of Ecology and Environment has released rules of new emission standards, China VI. The new standards mean that many light vehicles with internal combustion engines would have to improve their catalytic converters, fuel injection, and the structure of the engine so that they can meet the new standards. This has no doubt had a huge impact on demand for Rhodium in China since 2018. The EU has also put lower targeted levels of emissions for manufacturers in 2020-21, and a penalty would have been incurred for excess carbon emissions.  

In March of 2020, the COVID-19 recession happened and this caused the rhodium price to drop significantly.  

But as China recovers from the pandemic, the demand for catalytic converters are rising, too. After the first wave has passed in Europe, there has been an increase in sales of NEV in the EU in June and July. Sales of electric and hybrid vehicles reached their highest share of the market in July, making 18% of the whole car industry, while the sales of gasoline cars continue to decline consecutively for three years.  

The momentum for Rhodium is strong, but likely the push is not sustainable.  

As the EU and China have pledged for a carbon neutral future, in 2050 and 2060, respectively, the global economy is moving toward a carbon free future where electric vehicles will be the star of the show. Hybrid vehicles, which still use an internal combustion engine, will be obsolete by then. In fact the demand for catalytic converters will likely not stay high in the long run, if these economies are holding up to their carbon neutrality goals.  

The newly president-elect Joe Biden has an ambitious plan to make the U.S. also carbon neutral by 2050, just like Europe. However, given the current political climate, there are many uncertainties as to how realistic is the idea of a carbon free America.  

In the short run while gasoline cars are still relevant, we can expect a higher demand especially when the pandemic dies down a little. In the long run, depending on the rate at which the world economy is moving toward electric cars, catalytic converters will become obsolete.  

For our final prediction, we would recommend to not invest in Rhodium. In the short term, Rhodium’s demand seems bullish in the short term, however no prediction can be made in the long-run as the price of the metal is very volatile. It is just as easy to lose money by investing in Rhodium as it is to gain  money. In addition, Rhodium is very hard to sell as well. If you purchase a bar of Rhodium and choose to sell it due to a loss, it will take time as Rhodium isn’t publicly traded as a commodity. This further contributes to the volatility issue. The illiquidity, volatility, and the small market for Rhodium makes it a risky decision to purchase.  

Jargons: 

Price Volatility: The extent to which the price of commodities fluctuate. 

Catalytic Converters: A catalytic converter is an exhaust emission control device that reduces the amount of toxic gases and pollutants released in the environment 

New Energy Vehicles: Vehicles that use alternate versions of fuel such as ethanol, biofuel, electricity, etc. 

Bullish: A positive outlook in the markets\ 

Carbon Emissions: Carbon dioxide production that has labelled to be harmful to the environment. 

Works Cited 

  1. Mittelstaedt, M., 2020. Dull And Dusty Rhodium Has Its Charms. [online] The Globe and Mail. Available_at: <https://www.theglobeandmail.com/globe-investor/investment-ideas/dull-and-dusty-rhodium-has-its-charms/article590731/&gt; [Accessed 14 November 2020]. 
  1. Stevens, P., 2020. The Hottest Trade Of 2020 Is Rhodium. [online] CNBC. Available at: <https://www.cnbc.com/2020/01/13/the-hottest-trade-of-2020-is-rhodium.html&gt; [Accessed 14 November 2020]. 
  1. Hobson, P., 2020. Palladium, Rhodium Deficits Set To Grow In 2020: Report. [online] The Globe and Mail. Available at: <https://www.theglobeandmail.com/investing/investment-ideas/article-palladium-rhodium-deficits-set-to-grow-in-2020-report/&gt; [Accessed 14 November 2020]. 
  1. Van Der Walt, E., 2020. Rebounding Rhodium Bests Nearly Any Other Investment. [online] The Globe and Mail. Available at: <https://www.theglobeandmail.com/globe-investor/investment-ideas/rebounding-rhodium-bests-nearly-any-other-investment/article25537049/&gt; [Accessed 14 November 2020]. 
  1. Trading Economics. 2020. RHODIUM | 2012-2020 Data | 2021-2022 Forecast | Price | Quote | Chart | Historical. [online] Available at: <https://tradingeconomics.com/commodity/rhodium&gt; [Accessed 14 November 2020]. 
  1. Liedtke, S., 2020. Higher Precious Metals Prices Bode Well For South Africa-Based Miners. [online] Mining Weekly. Available at: <https://www.miningweekly.com/article/higher-precious-metals-prices-bode-well-for-south-africa-based-miners-2020-11-03&gt; [Accessed 14 November 2020]. 
  1. Warwick, F., 2020. Rhodium Price Rises May Prompt South African Producers To Mull Restarts | S&P Global Platts. [online] S&P Global Platss. Available at: <https://www.spglobal.com/platts/en/market-insights/latest-news/metals/101320-feature-rhodium-price-rises-prompt-south-african-producers-to-mull-restarts&gt; [Accessed 14 November 2020]. 
  1. Sykora, A., 2020. Rhodium Prices Soar On ‘Demand-Driven Story’. [online] Kitco News. Available at: <https://www.kitco.com/news/2020-01-08/Rhodium-prices-soar-on-demand-driven-story.html&gt; [Accessed 14 November 2020]. 
  1. Reuters. 2020. China’s NEV Sales To Account For 20% Of New Car Sales By 2025, 50% By 2035. [online] Available at: <https://www.reuters.com/article/us-china-autos-electric-idUSKBN27C08C&gt; [Accessed 14 November 2020]. 
  1. Yang, L. and He, H., 2018. China’S Stage VI Emissions Standard For Heavy-Duty Vehicles (Final Rule) | International Council On Clean Transportation. [online] Theicct.org. Available at: <https://theicct.org/publications/china%E2%80%99s-stage-vi-emissions-standard-heavy-duty-vehicles-final-rule&gt; [Accessed 14 November 2020].  
  1. U.S. 2020. China To Require Tougher New Vehicle Emission Standards For 2020. [online] Available at: <https://www.reuters.com/article/us-china-autos-emissions-idUSKBN14C0Q4&gt; [Accessed 14 November 2020]. 
  1. Climate Action – European Commission. 2020. Reducing CO2 Emissions From Passenger Cars – Before 2020 – Climate Action – European Commission. [online] Available at: <https://ec.europa.eu/clima/policies/transport/vehicles/cars_en#:~:text=From%202021%2C%20phased%20in%20from,l%2F100%20km%20of%20diesel.&gt; [Accessed 14 November 2020]. 
  1. Gaton, B., 2020. Electric Vehicle And Hybrid Sales Hit Record Share Of 18 Per Cent In Europe. [online] The Driven. Available at: <https://thedriven.io/2020/08/31/electric-vehicle-and-hybrid-sales-hit-record-share-of-18-per-cent-in-europe/&gt; [Accessed 14 November 2020]. 
  1. Borrell, J., 2020. China Carbon Neutrality In 2060: A Possible Game Changer For Climate. [online] EEAS – European External Action Service – European Commission. Available at: <https://eeas.europa.eu/headquarters/headquarters-homepage/87431/china-carbon-neutrality-2060-possible-game-changer-climate_en#:~:text=During%20his%20speech%20to%20the,achieve%20carbon%20neutrality%20before%202060&#8242;.> [Accessed 14 November 2020]. 
  1. European Commission. 2020. 2050 Long-Term Strategy. [online] Available at: <https://ec.europa.eu/clima/policies/strategies/2050_en#:~:text=The%20EU%20aims%20to%20be,net%2Dzero%20greenhouse%20gas%20emissions.&text=All%20parts%20of%20society%20and,%2C%20buildings%2C%20agriculture%20and%20forestry.&gt; [Accessed 14 November 2020]. 
  1. Brady, J., 2020. Breaking Down Joe Biden’s Plan To Make The U.S. Carbon Neutral. [online] NPR. Available at: <https://www.npr.org/2020/10/25/927564427/breaking-down-joe-bidens-plan-to-make-the-u-s-carbon-neutral?t=1605215458018&gt; [Accessed 14 November 2020]. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s