Rhodium Will Continue To Shine After Recent Production Cuts
(Kitco News) - For most precious metals investors, 2018 has been a frustrating year, especially in the last four months as gold prices have dropped 10%.
However, for some bullish investors, the year has been fantastic as there is one metal that has been the bright star in the precious metals marketplace, and some analysts see potential for even higher prices in the long-term.
So far this year, rhodium, which is a precious metal within the platinum group metals, has rallied more than 38%, last trading at $2,185 an ounce, its highest level since April 2011. The metal is up 280% from its 2018 multi-year low. The precious metal
Looking ahead, some analysts see potential for the precious metal as there could be a supply crunch on the horizon. Earlier this week, South African miner Impala Platinum, also known as Implats, announced production cuts. The company said that over the next two years it plans to reduce platinum production to 520,000 ounces, down from the current production of 750,000 ounces.
Rhodium is mined as a byproduct of platinum and palladium and some analyst say that this could have an impact on supply. the main source of demand for rhodium is from the auto sector as it is a critical component of catalytic converters.
“The market remains tight and is only going to get tighter with production cuts,” said Jonathan Butler, precious metals strategist at Mitsubishi Corporation. “All of this adds up to lower rhodium supplies in the future, and implies greater market deficits.”
Peter Hug, global trading director at Kitco.com, also sees the Implats news as bullish for rhodium market.
However, he added that investors should temper their expectations; he said that he doesn’t see the metal heading back to its historic highs at $10,000 an ounce.
“Rhodium does the have potential to explode because of supply issues,” he said. “We think if prices can get above $2,300 an ounce then we think it has a chance to hit our upside target of $3,000 by 2019.”
Bernard Sin, head of trading at MKS Pamp Group, said that although the market has potential to move higher because of low production, it’s difficult to predict rhodium price action as it is such an opaque market.
Rhodium only trades in over the counter markets with little data available to investors.
“It’s hard to tell just how much supply there is in the marketplace,” he said. “There is potential for prices to go higher but it won’t happen overnight.”
Sin added that global economic growth concerns could keep rhodium prices in check in the near-term. He noted that platinum has seen little movement following Implats’ announcement as prices remain near a multi-year low.
October platinum futures last traded at $837 an ounce, up 0.63% from the previous week.
But not all analysts are bullish on rhodium. Simona Gambarini, commodities economist at Capital Economics, said that her firm sees the metal ending the year at $1,950 an ounce.
“While rhodium is still likely to outperform its sister metals this year, we think that slower economic growth in China and softer auto sales in other core markets will lead to lower prices over the coming months,” she said in a report last month. “The reason why we are not more negative on prices is that supply is getting tighter.”