Rhodium, a rare metal that is used in automotive catalytic converters to meet strict emission norms, has surged to a record high of $29,200 a troy ounce ( ₹21.36 lakh per 31.10 gm) on higher demand from the automotive industry to meet emission norms.

According to the Trading Economics website, rhodium prices have increased 71.76 per cent since January 1 this year, the highest gain any commodity has seen till now.

Analysts and research firms point to three reasons for the sharp spike in prices of rhodium that is used in automotive exhaust systems to reduce toxic gas emissions. The use of the rare metal, estimated to make up only 0.0002 parts per million of the earth’s crust, began in the exhaust system of vehicles from the mid-1970s.

Europe, the US and other nations such as India, China and Japan have all committed to reducing their toxic emissions as part of the Paris agreement and hence have come up with stringent norms to tackle air pollution.

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Supply deficit doubles

One, the growing demand from the automotive industry to meet the rising stringent emission norms comes during a supply deficit that the market is facing.

According to Johnson Matthey PLC, a British multinational speciality chemicals and sustainable technologies company, the deficit in the rhodium market doubled last year as primary supplies contracted. The deficit was despite a drop in auto catalyst and industrial demand for rhodium.

Today, rhodium is 17 times costlier than gold ($1.708.26 an ounce), 12 times than palladium ($2,355 an ounce) and 25 times than platinum (1,139.46).

In fact, an ounce of rhodium is as costly as a Toyota Innova or Kia Carnival or Tata Harrier or Honda Civic or many other top-end cars.

The Washington Post recently reported that burglars in the US have begun sawing off car’s exhaust pipes in search of rhodium in vehicles after prices ran up to a record.

Phenomenal price movement

The demand for rhodium has resulted in a phenomenal price movement of the metal since 2019. It moved up from below $3,000 (₹2.18 lakh) in January 2019 to $17,000 (₹12.40 lakh) by December-end 2020, Johnson Matthey said.

More importantly, rhodium has rebounded from a low of losing two-thirds of its gains in March last year, dropping to $5,500 (₹4.01 lakh), before beginning to ascend again.

Last year, rhodium supply dropped to 5,83,000 ounces from 7,60,000 ounces in 2019. The fall in production was mainly on account of South African output dipping to 4,50,000 ounces from 6,24,000 ounces, the British speciality chemicals firm said.

Demand for rhodium, according to Johnson Matthey, decreased to 6,67,000 ounces last year compared with 7,98,000 ounces in 2019. Yet, the deficit more than doubled to 84,000 ounces from 38,000 during the period.

South Africa’s contribution

South Africa is the largest producer of rhodium, making for between 80 per cent and 90 per cent of the total global production. Russia, which produces 65,000-68,000 ounces annually, is the second-largest producer, while the rest of the world makes up less than 70,000 ounces of the output.

Russia’s rhodium supply is subject to political interventions, though.

Car manufacturers have begun to complain about the sharp increase in rhodium prices in India. Last month, Maruti Suzuki said that increasing commodity prices, especially those of rhodium and palladium that are used in catalysers to meet emission norms, are putting pressure on their costs.

One of the problems that industrial users and end-users face in sourcing rhodium is that the metal does not have a futures market. There are only a few exchanges that trade the element, including Johnson Matthey in Hong Kong, according to Trading Economics .

According to firms dealing with rhodium scrap, producers are behind the supply shortage as they are releasing very little rhodium in the spot market.

Carmakers want more

The second reason behind rhodiu’s unprecedented run is that car manufacturers in China and Europe are using more of the rare metal to meet tough environmental norms to maintain clean air.

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Rhodium is hard, chrome-like in appearance and very resistant to corrosion and thus is preferred by automotive manufacturers.

Johnson Matthey said in its “PGM Market Report” that rhodium finds its use only in a handful of industries such as automotive, chemical and glass sectors. The metal has unique chemical and physical properties and it is difficult to find a substitute for these applications.

Rhodium is used in production equipment used to make fibreglass and glass fibres, in liquid crystal displays and other digital displays, advanced laboratory testing equipment, jet engines, sensors and thermocouples that are used in nuclear reactors.

In the jewellery sector, it is used for thin plating.

According to German technology group Heraeus Precious Metals, the automotive industry is the largest customer, and its demand is likely to remain high in view of tougher emission regulations.

Within the automobile sector itself, China’s market is expanding faster as it has recovered faster than others from the impact of Covid-19.

Besides China, the automotive markets in the US, Europe and India, too, have staged a comeback, according to Forbes , which has forecast strong growth in the sector this year, particularly Europe.

The third factor

The third reason for the galloping rhodium prices is supply from South Africa, the largest producer, being affected due to Covid-19. Also, there has been virtually no investment in new mines in the past couple of decades.

The coronavirus pandemic has affected South Africa’s economy and some of the underground mines are yet to be fully functional. Besides, one of the producers shut its converted plant following an explosion.

According to Mining.com website, the lack of primary rhodium mines is affecting the growth in supply, while the current projects under development or up for investment have low rhodium content.

At the same time, analysts and research firms don’t see the demand for rhodium in automotive catalytic converters dropping.

Rhodium scrap firm, Rockaway Recycling, said that the demand, coupled with the metal’s scarcity, will keep prices firm. “Because rhodium is both scarce and expensive to extract from ores, its value is almost certain to remain quite high,” it said.

Heraeus Precious Metals says rhodium prices are likely to fluctuate at high levels and volatility will be the norm. “The market deficit for rhodium should widen further this year. Demand from the automotive industry, by far the largest customer, is likely to remain high in view of stricter emission regulations,” the German firm said.

The scrap firm said that every offer to sell rhodium is being taken as prices for the metal are expected to climb even higher. Based on the metal’s investment history, it may be wise to sell it now — even if its price could still increase.