This Is The Shining Star In The Precious Metals Market
(Kitco News) - It’s not all doom and gloom in the precious metals market as there is one metal that is significantly outperforming the sector.
Rhodium is garnering new attention in the marketplace as prices are hitting their highest levels in seven years. Spot Rhodium on Kitco.com pushed to $2,000 an ounce Thursday and is up 26.5% since the start of the year. In comparison, gold prices lack momentum, with prices continuing to hover around five-month lows, last trading at $1,288.70 an ounce, down 1% since the start of the year.
According to one trader at a European precious metals company, Rhodium is benefiting from growing supply concerns in the platinum metals market. The trader noted that low platinum prices in South Africa are weighing on mining production.
“The prices is up because companies are scrambling to buy the metal and buildup their inventories in case there is a disruption in supply,” the trader said
Rhodium is classified as a platinum group metal, and 85% of the metal’s demand comes from the auto sector as it is a component in catalytic converters. Analysts have noted that Rhodium is a fairly small liquid market and is prone to high volatility. The metal is traded in cash markets and does not trade in future markets.
The consistent uptrend in Rhodium comes as analysts expect to see a record drop in 2018 demand. Johnson Matthey, the world’s largest secondary platinum group metals refiner, projects for overall demand to fall 3% this year; however, it notes that this might not weigh on prices as consumers are looking to the future.
“The prospect of future increases in automotive demand may stimulate further speculative and strategic buying. If this should occur, rhodium availability could remain tight, even though our supply-demand estimates suggest that the market is likely to move back into surplus in 2018,” the analysts said in their report.
In a telephone interview with Kitco News, Jeffrey Christian, managing director at CPM Group, said that while demand might be declining this year, there is still an overall uptrend in the market.
He noted that auto sector demand for rhodium has seen 2.8% aveage growth in the last seven years. Not only is demand picking up, but suppliers are holding on to the metal as there are indications that inventory levels have fallen to critical levels.
“I think prices can continue their upward trend and will probably have to get much higher to loosen market supply,” he said. “You’ve got this captive fabrication demand that is rising and not a lot of supply, so prices can move higher.”
However, Christian added that the market is completely opaque and would recommend that investors stay away from it.
“It’s easy to buy rhodium but it is incredibly hard to sell,” he said.
While rhodium is testing a seven-year high, the price is still dramatically down from its $10,000 an ounce peak in June 2008.