Is Rhodium Pulling A Thelma & Louise?

For three years I have been preaching to all of Precious Metals industry analysts that this structural deficit on Rhodium is just getting worse and worse.  The Rhodium fix since 2016 reflects that.  April 1, 2016 saw Rhodium at $740/Toz.  Today, August 30, 2019 it’s at $5,000/Toz.   That is a whopping 6.75x increase.

I have claimed that this minor PGM has been driving off a cliff for several reasons.  Here they are:

1) Demand keeps climbing even with global vehicle sales flat.  Auto Catalyst demand keeps climbing for Rhodium and Palladium both. It ends up big auto loves Rhodium for its ability to suppress NOx, a critical emission that tightens each year now int he EU and US/CARB standards.

2) Rhodium mined supply is diminishing over the next 15 years.   The oldest PGM mines in So. Africa are approaching end of life.  As they do the projected mined output of many of these Western and Eastern Bushveld Complex mines will reduce.  This is especially important to the UG2 Reef where the composition of Minor PGM's is at the highest in the world.  All of the new new Zimbabwe and So. African Northern Limb projects will not harvest enough Rhodium to offset the declines in the UG2 reef.

3) Auto Catalyst Recycle has hit some new SiC bumps in the road.  SiC levels are higher today than ever, and climbing. This has the effect of mucking up the PGM smelters and refine, forcing more frequent cleaning of the systems, lowering output, when we need more.  Frankly we need aggregate PGM Smelting capacity additions just to keep up with increasing available recycle streams.

4) Real World emission test protocols in the EU and China have driven increased PGM loadings to meet standards.  This is a direct by-product of Diesel-gate.  Forget just shoving the sensor up your tailpipe and revving the engine for a few minutes, the testing protocol now forces testing under different loads, up hills, at full speed on the freeway, etc.

5) Gasoline/Electric Hybrids like the Toyota Prius have increased PGM loadings.   You wouldn't think that, but the most stressful load on emissions is during a "Cold Start".  Hybrids do a lot of on and off starts.  It is extremely stressful in Real World Testing when a Hybrid is running off electric going full speed, and then the engine kicks in.  More loadings are needed to manage those transient spikes in emissions.  Oh and the demand for these is at a huge inflection point.

6) Durability and Contamination Resistance.   Rhodium can help add a level of robustness to some contaminants that can enter the catalytic converter and poison the PGM Catalyst.  This impacts the durability or performance of the catalytic converter over its lifetime.

7) Decline of Diesel vehicles in the EU, shifting more to Gasoline and Hybrids.  Diesel PGM Catalyst designs use less rhodium than gasoline. 

8) Little Rhodium Investment Populations to draw on.  Palladium and Platinum have much larger pools of investment bullion and global ETF position to draw on.  Rhodium has very little, and it's almost all be consumed in the past few years.

Thank Goodness for the Slowdown:   I often tell people thank goodness for the Global economic slowdown and the US-China Trade War.   What a mean thing to say.  Except when you think if China would have remained on the Gasoline CAGR it was on, since 2017 there would have been an incremental 16M vehicles sold.  The incremental Rhodium loadings would have generate a 100k Toz of Rhodium demand, or approximately 2 months mined supply.  Today's $5,000 a troy ounce would be much higher would this have happened.

All signals are up.  The rhodium ride is not over.  Let us all hope big auto and regulators come to solid conclusions about how to manage this.  When Rhodium climbed to $10,000 before, the market collapsed and many of my Precious Metals peers lost millions in the process.  I think we would all hate to see that again.