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Investing in Rhodium
In these troubled economic times an increasing number of people are turning to Gold and Silver to protect their savings from inflation and the risk of a complete collapse of the fiat currency ponzi. Gold and silver are attractive because of their intrinsic value as precious metals and their long history of being a sound store of value. However there is one precious metal which is rarer than both gold, silver or even platinum. That metal Rhodium. This article looks at Rhodium as an Investment
Rhodium is a silvery white metal which belongs to the platinum group of metals (PGM). It has the chemical symbol Re and atomic number 45. Rhodium is extremely rare, it is over 4 times rarer than gold in the earths crust. Rhodium is found in ores mixed with other metals such as platinum, palladium, gold and silver which require complex industrial extraction. There are no specific Rhodium mines in the world. It is not economic to mine for Rhodium by itself, rather it is a by-product primarily of platinum and palladium mining. It can also be found in Nickel and copper deposits, in very small amounts. Currently approximately 80% of the worlds Rhodium is supplied from South Africa, followed by Russia.
Uses of Rhodium
The main use of Rhodium is in the automotive industry. Approximately 70% of the world’s production is used in three way catalytic converters which help curb emissions in automobiles. Rhodium is used along with Platinum and Palladium in these converters to filter unwanted gases from exhaust systems. Rhodium is used as a reduction catalyst to break down Nitrogen Oxides. There is currently no substitute for Rhodium. Neither Platinum or Palladium can perform this function. Rhodium is an essential component of the three way catalytic converters which are equipped in all cars sold in the U.S. today. As emission standards in vehicles become stricter, more Rhodium is needed in the catalytic converters. Approximately 0.25 grams of Rhodium are used in the average 3 way catalytic converter.
Rhodium is also used in the glass and chemical industry. Rhodium is an alloying agent for hardening corrosion resistance of platinum and palladium which is used in components of glass furnaces, electrodes for aircraft, electroplating and various other applications. A small amount of Rhodium demand also comes from Jewellery which serves the very high end market.
Why Invest in Rhodium?
Rhodium has hit the radar of contrarian investors due to the massive fall in prices since 2008. In 2008 (pre financial crisis) the price of Rhodium topped $10,000 per ounce for short period. Currently the price is currently $1450 per ounce, a decrease of almost 90%!!!
The fall in the price of Rhodium can largely be attributed to the downturn in the automotive industry and projected demand for catalytic converters. While demand for Rhodium has fallen since 2008 the 90% fall in price seems overdone due to a number of reasons which will be addressed later in this article.
As we can see from the above chart the current price of Rhodium of $1450 is historically low over this 20 year period. The price in 1992 was $2800 followed by a decline in price until 1999 where the price spiked to as high as $2500; the price fell away again before a steep rise in price from 2004 onward driven by shortages in supply v demand driven by the increased industrial usage of Rhodium. Following the financial crisis of 2008, the price of Rhodium fell sharply as the auto industry suffered a downturn.
Demand v Supply
The short to medium term outlook for Rhodium (and the other PGM) metals is neutral as the auto industry recovers and supply is adequate to cover demand. However the long term outlook of this metal is very promising. The above table shows Rhodium supply v Demand over the 10 year period to December 2011. Since 2008 we can see the supply of Rhodium outstrips demand which explains the depressed price; however this oversupply is driven by recycling of Rhodium in Catalytic converters NOT by new Rhodium supply coming online from mining. If we adjust for the recycled amount then the net position is one of deficit. In times of economic recession it is less likely that motorists will trade in their old vehicles for new ones and this reduces the available Rhodium for recycling.
It is important to note that between years 2004 and 2007 as soon as the supply of Rhodium went into deficit the price of Rhodium increased significantly to its high of over $10,000 per oz. What we can conclude from this is that the price of Rhodium is very elastic and fluctuations in demand for the metal have significant impact on the price. There are a number of reasons why demand for Rhodium could increase over the medium to long term.
5 random facts about Rhodium
- In 1979, the Guinness book of Records awarded Sir Paul McCartney a special rhodium disc for selling over 200 million albums
- Rhodium was discovered in 1903 by Englishman William Hyde Wollaston who named it after the Greek word for rose.
- In 2008 the Drudge report claimed that Barrack Obama was to buy a $30,000 Rhodium ring for Michelle Obama. The rumour was later denied by Obama and the jeweller in question.
- In 2008 a number of stolen Catalytic converters were reported in the press as thieves targeted out the valuable rhodium, platinum and Palladium mesh.
- Rhodium is extremely hard and brittle. Unlikemore common precious metals such as gold, silver rhodium will not bend and is very difficult to work with.
1. Increasing demand for new and cleaner vehicles in China and Southeast Asia. Pollution is a big problem in this part of the world and emission standards in vehicles have been tightened in China with new standards expected to be in place by 2012. http://www.china.org.cn/china/NPC_CPPCC_2011/2011-03/12/content_22119803.htm
2. The amount of Rhodium in the earth’s crust is considerably less than gold, yet the price of gold is currently 19% higher than the price of Rhodium. The abundance of Rhodium is estimated to be .0002 PPM (parts per million) in the earth’s crust compared to gold which is 0.0011 PPM. That makes Rhodium approximately 4.5 times scarcer than gold.
3. Increased demand for Rhodium in the Glass and Chemicals industry. Rhodium demand in the glass industry increased by 25% in 2011. Demand for Rhodium in the Chemicals industry is expected to increase due to expansion of production of oxo-alcohol and acetic acid in China.
4. In 2011 Deutsche Bank launched a physically backed Rhodium Exchange traded fund (ETF) which takes Rhodium out of circulation and holds this in physical form for investment purposes. Rhodium demand from this fund is expected to be between 15 and 25,000 ounces per year.
5. Limited supply of Rhodium. Currently most of the worlds Rhodium is supplied by just 5 Mines. Recovery of Rhodium is driven by the current price of Rhodium. As the price of Rhodium falls it becomes less economic to recover the metal, thus driving down supply and putting pressure on the price to increase.
Jack Lifton talks Rhodium
In this video Jack Lifton of Technology Metals Research speaks to Kitco News about future demand of Rhodium, the Rhodium ETF and Rhodium price forecasts.
How to Invest in Rhodium
Because Rhodium is an exotic metal it is difficult to buy and the market is quite illiquid. This makes both buying and selling Rhodium much more difficult than for other more conventional precious metals such as gold and silver. Three methods to Invest in Rhodium are provided below:
1) Physical Rhodium Coins and Bars. Rhodium coins and bars can be purchased from the Cohen Mint in the United States. The Cohen Mint produces its own Rhodium coins and bars in various weights the most common being the 1 oz coin and bar. http://www.rhodiumcoin.com/index.html
2) The Deutsche Bank Rhodium ETF (ticker symbol XRH0). This is currently the only physical Rhodium ETF available. It is traded on the London Stock exchange.
3) Investing in the mining companies which produce Rhodium. There are a handful of companies which produce Rhodium on the US and Canadian stock exchanges; however there are no pure Rhodium mining companies. Currently all Rhodium is produced as a by-product of Platinum, Nickel and Palladium mining, therefore investing in mining companies is an indirect way of gaining exposure to Rhodium.
Rhodium is the wild child of the platinum group of metals, the highs are higher and the lows are lower. Just like its cousins Platinum and Palladium, the price of Rhodium is primarily driven by Industrial demand for the metal. There are however a number of factors which suggest Rhodium is undervalued at the current price and worth a second look for those precious metal buyers who are looking for something different.
Platinum Today, a business unit of Johnson Matthey Plc.
The Cohen Mint
Disclaimer: I am not a financial advisor and this article should in no way be read as investment advice. The opinions offered in this article are my own and I do not make any assertions that he price of Rhodium will go up. As always be sure to carry out your own due diligence and research before making any investment decision.