Rhodium supply deficit to widen: refiner Heraeus

London — Rhodium's 2020 deficit is set to increase further as a result of COVID-19 related lockdowns hitting supply more than demand, said one of the world's largest platinum group metals refiners Heraeus Precious Metals.

Heraeus said the rhodium market is expected to move into a deeper deficit of 55,000 oz in 2020, greater that the 20,000 oz deficit noted in 2019, which in turn will continue to provide support for prices in the near term.

The Johnson Matthey rhodium London base price as of 0800 GMT Sept. 18, stood at $14,300/oz, down 1.4% day on day but up 19.2% month on month.

Rhodium is expected to be affected by the impact of coronavirus more than platinum or palladium in 2020, with labor-intensive conventional mines in South Africa, which accounts for around 80% of global rhodium mined supply, experiencing a slow ramp-up post-lockdown and hitting supply.

"COVID-19-related supply disruptions in South Africa, have led to an estimated 19% reduction in global mine yield to 635,000 oz, which is the largest percentage decline forecast of all the PGMs [platinum group metals] this year," Heraeus said in its latest PGM market report.

"South African production is predicted to slump by 24% to 485,000 oz. Output from Russia, the world's second-largest producer, Zimbabwe and North America is forecast to be little changed."

Besides the COVID-19-related supply disruptions, market analysts have shared their concerns regarding interruptions to power supply related to Eskom. South Africa's stated-owned electricity utility supplies around 95% of the country's electricity.

Secondary rhodium supply to drop

Heraeus said secondary rhodium supply is expected to drop by more than 11% in 2020, with more significant declines in Europe than in the US owing to the region's more widespread lockdowns.

"As with palladium, rhodium's main end-use is the automotive industry and with vehicle sales forecast to shrink significantly, demand is likely to be hit hard," the refiner said.

The company said auto catalyst demand is estimated to fall by 14% to 860,000 oz in 2020, "although it will benefit marginally from tighter emissions standards."

"Higher rhodium loadings in gasoline TWCs [three way catalysts] to meet China 6 and RDE [Real Driving Emission] standards, and gasoline vehicles' continued high share of the recovering light-vehicle market, are driving rhodium demand in the wake of the pandemic," Heraeus said.

The company said higher loadings are expected to improve demand from China this year, when total auto catalyst demand is expected to fall by 140,000 oz worldwide.

Nearly 80% of the annual demand for rhodium comes from the global automotive industry, which uses the metal in catalytic converters to control emissions of greenhouse gases and pollutants.

Heraeus said industrial demand is projected to fall by 18% to 140,000 oz, mostly due to slow economic growth "but also to ongoing price-induced substitution and thrifting in the glass industry."

Strong rebound from China

Heraeus' global head of trading Hans-Guenter Ritter said: "A stronger and quicker rebound of the auto demand than previously expected, especially out of China, is driving demand and price in a usual thin market."

New data published early September showed China's passenger vehicle vehicle sales in August were estimated at 2.18 million units, up 11.3% year on year. Vehicle sales are expected to be firm in September, the traditional peak buying season amid car exhibitions, new car launches and political support, said the China Automobile Dealers Association.

Heraeus said: "With South Africa's operations closing in on full operating capacity and processing bottlenecks being overcome, metal availability should improve going into Q4 and the price is expected to temporarily reset lower in the near term."