Spurred by rhodium's price rise, it has cut its level to the $21,000 spot price on January 15. Compared to the end of last year, it has soared by about 25%, and compared to the end of 2019, it has soared by 251%. The surge was fueled by growing demand for rhodium in China and supply fears in South Africa, which has made the tight supply-demand balance more acute this year. (Chart courtesy by Mr. Saito)
First of all, in order to understand the demand for rhodium, it is necessary to recognize the trend of palladium as the same catalyst. The Trump administration agreed in November 2018 to review the U.S.-Canada-Mexico Free Trade Agreement (NAFTA) from a U.S.-first perspective and conclude a new free trade agreement (USMCA) among the three countries. This will result in an increase in automobile production in the United States. The Trump administration had also called on Japan and Europe to expand vehicle production in the United States.
In addition, sales of automobiles in the U.S. were strong in line with the booming economy, and sales of large vehicles were particularly conspicuous. As a result, demand for automotive catalysts in the U.S. increased significantly, and palladium, which was used as the main catalyst in the United States, surged in 2019, while CME group sedated the market by significantly increasing margin in the palladium market in New York.
Platinum was the center of automotive catalysts in Japan and Europe, while palladium was the center in the United States and China. The surge in palladium is thought to have increased demand for rhodium, which has traditionally been used as an automotive catalyst in China.
In China, future production and sales of electric vehicles (EVs) were planned as environmental measures, but in the fall of 2019, the policy was to be significantly revised. This is because china's electricity supply is coal-centric, so if EV vehicles become popular, demand for coal will increase, and on the contrary, there will be concerns that it will emit more carbon dioxide (CO2). From the EV center, 50% of EVs and 50% others will be admitted to gasoline and hybrid vehicles with low fuel consumption. Of course, strict automobile exhaust gas standards will be applied to gasoline-based vehicles, and it can be said that the demand for automotive catalysts will increase more than ever. As a result, it can be said that the rise in palladium and rhodium has added to the rise.
As the spread of COVID-19 continues in China, China's car sales have increased for the ninth consecutive month through December last year, with gasoline-based vehicles at the center, supporting an increasing trend in demand for catalysts. Meanwhile, most rhodium supplies are in South Africa. Global production in 2019 was 726,000 ounces (20.6 tons), of which 610,000 ounces (17.3 tons) and about 84% were in South Africa.
Global rhodium production was 780,000 ounces in 2017, 753,000 ounces in 2018, and 72.6 tons in 2019 and so much to 20.6 tons. Global production is expected to decline significantly to 638,000 ounces (18.1 tons) in 2020 due to the novel coronavirus. Of these, 516,000 ounces (14.6 tons) were in South Africa.
In South Africa, there was a movement to halt some of the mine's production last summer (winter in South Africa) due to the spread of the new virus infection, but in the fall, operations resumed. However, the outbreak of the mutant virus in South Africa has been spreading rapidly since the end of last year, and some have been put out of operation of the mine, and fears of the risk of the mutant virus are making the supply anxiety in South Africa more serious than ever.
In China, the spread of the new coronavirus is spreading mainly in Hebei Province, where Beijing is located, and it is also noted that the brakes will be placed on car sales, which have been so strong. However, since 2021 will mark the 100th anniversary of the founding of the Communist Party of China, economic development is an absolute condition for the Communist Party of China, so it is speculated that even if car sales slow, it will remain temporary and extremely limited.
Since it is expected to take a considerable amount of time to review coal-centric power supply in China, it is expected to maintain the production and sales of gasoline-powered vehicles while applying strict automobile exhaust gas standards, and in that sense, the expansion of demand for rhodium is inevitable in the future.
In the U.S., a new Biden administration will take office on January 20, but the new administration is expected to push for policies based on the global environment, such as taking steps to return to the Paris Agreement, which U.S. President Donald Trump withdrew from it. However, it is unlikely that EV will suddenly become a pillar of automobile production, and it is assumed that the policy of reducing CO2 emissions of automobiles will be promoted by expanding the ratio of bio fuels mixed to gasoline, which was a pledge of the presidential election, and demand for palladium-centered catalysts in the United States will continue to remain high. In other words, China's reliance on rhodium is likely to continue.
By the way, the prospect of a lack of rhodium supply in 2020 from BASF last November is 47,000 ounces (1.3 tons), and the supply shortage will expand to 162,000 ounces (4.6 tons) in 2021 and 335,000 ounces (9.5 tons) in 2022. Depending on the prolonged infection of COVID-19 in South Africa, there may be a shortage of supply that BASF has speculated.
It must be said that the $21,000 level of rhodium is indeed quite high, the improvement in the tight supply-demand balance will continue to be severe, and it should be expected that the uptrend will continue in this year, with $20,000 as a passing point.
Kazuhiko Saito
Chief Analyst at FUJITOMI Co., Ltd.
