Core Consultants MD, Lara Smith, provided commentary to the Daily Maverick about rhodium. Below is the article as it appears on Daily Maverick‘s site.
An ounce of rhodium is now worth more than 10 times what an ounce of gold is fetching. And South African platinum group metal producers are the clear winners.
Rhodium has roared into 2021 like a lion on steroids.
The price of the platinum group metal (PGM), a crucial catalyst to cap emissions generated by petrol engines, shot to record highs above $20,000 an ounce on Wednesday, extending a 2020 rally with no end in sight.
Emissions standards are tightening and supplies are falling woefully short of anticipated demand, triggering a mad scramble to secure the commodity. Rhodium’s price has gained almost 20% in the past fortnight and an astonishing 3,000% over the past five years.
Two key factors are behind the latest surge. One is Chinese auto demand, the world’s largest market on this front. It slipped slightly in 2020 but is forecast to rebound this year as Chinese economic growth gathers pace. Also, emissions standards in the Asian Goliath are set to tighten again in 2023.
Chinese growth, often an engine for commodity booms, is sparking yet another boom. On the supply side, stoppages at Anglo American Platinum (Amplats) processing units slashed the supply of rhodium by 16% last year, Reuters reported, citing consultancy Metals Focus.
“We expect severe rhodium shortages in excess of 150,000 ounces this year, and that deficit could widen over the coming three to four years,” Lara Smith, director of mining consultancy Core Consultants, told Business Maverick.
“It was climbing even last year and still it didn’t stimulate production, and even worse, we saw a lot of precious metal deposits actually going offline and unable to produce to capacity due to Covid.
“But rhodium prices are traditionally quite volatile so strong prices are not enough to justify restarting production. As a result, if they don’t restart, or even if they do restart, without new mines this deficit will only widen.”
South African PGM producers, especially those with relatively significant rhodium ratios in their output mix, are the clear winners here.
Rhodium is now over 10 times more valuable than gold. The battle cry of the strikers gunned down at Marikana in 2012 was a wage of R12,500 a month. A single ounce of rhodium now fetches more than 20 times that amount – 1.5kg of the stuff costs almost $1-million.
Diversified precious metals producer Sibanye-Stillwater (Sibanye) is the world’s top producer of the world’s most precious metal, churning out about 160,000 ounces a year, 7% of its global output. For Impala Platinum (Implats), it accounts for 6.5% of production.
“Rhodium is about 6% of the metal mined in the PGM basket but is now about 50% of the revenues, and so the PGM producers will have incredibly good earnings and I think they will pay out all of these earnings in cash dividends,” Daniel Sacks, portfolio manager of the Ninety One Commodity Fund, told Business Maverick.
“Normally, that excess cash would be channeled into growth projects or to repay debt, but there is little debt now, and there is a reluctance to build new mines. Mines are long lead-time projects so it’s going to take 20 years… will there still be a demand for PGMs in 20 years?
“So, unlike previous cycles where the cash was spent on new mines – and that ultimately killed the supply story – I think shareholders will get rewarded with dividends,” Sacks said.
Palladium’s price is also perky at close to $2,400 an ounce, and another bounce to its record highs over $2,800 an ounce is certainly on the cards.
Platinum’s price has also been picking up, though at just over $1,100 an ounce, it has a steep climb to get back to its record territory of over $2,100 an ounce that was scaled well over a decade ago.
Platinum has been waylaid by many factors over the years, including the switch to petrol from diesel engines in key markets. But a new trimetal catalyst unveiled last year by Sibanye and Implats, that enables platinum to be thrown into the petrol mix, may reignite platinum demand.
This will be lost on trade unions, but moderate three-year wage deals were agreed in late 2019 with Sibanye, Amplats and Implats.
The JSE’s Platinum Mining Index is up about 4% in the fortnight since the year began, adding to big gains made last year. Of course, in these uncertain times, who knows what the next fortnight might bring.
But as things stand right now, the outlook for South African PGM producers is bullish to say the least. And that in turn will boost South Africa’s exports and trade balance, providing support to the rand while adding to the economy’s gross domestic product. BM
