How the Rhodium Price Crashed in March
It is interesting to look at the rhodium price again, after a deep backdrop. The futures price fell from 29,190 USD on the top to 24,890 dollars, by 14.7 percent. The only exchange-traded product, the DB Xtrackers Physical Rhodium ETC (XRH0) crashed to 1,781 from the 2,600 top in ten days this month. (By 31.5 percent.) But at the time of writing, it seems to stabilize. The last trade was $1,979.70. (Read my first post about rhodium here.)
Perhaps it was time for a correction after the incredible price explosion in the last months. The bottom of the mentioned rhodium ETC (exchange-traded commodity) of Deutsche Bank was $290 in March 2020. Also, end of 2019, it was trading only near $505. The price surged 144.5 percent in the last 365 days and still 42.4 percent year-to-date. (It was 72 percent YTD on the top.) Some posts claim the rhodium price skyrocketing was the highest gain any commodity has seen till today.
The Breathtaking Rhodium Rally
Rhodium is extremely scarce, and the automotive industry is in constant demand for the product. Even in times of pandemics. The economic recovery, expected in the middle and second half of this year, may further increase the buying pressure. So, possibly this correction was only temporary and technical. Since the causes of the past price jump have not yet disappeared and may last much longer.
But, which are the reasons for the fantastic bull run? “Clean-air legislation fuels a breathtaking rally in rhodium”–wrote Financial Times. An Indian finance site cites Johnson Matthey PLC, a British raw materials and chemicals expert. They named three reasons, although the essence of all is the same.
A tight supply and strong demand.
3 Reasons Behind Rhodium’s Incredible Run
- The deficit in the rhodium market doubled last year as primary supplies contracted. (Deficit to 84,000 ounces from 38,000 in 2019.) It happened despite a drop in auto-catalyst and industrial demand for rhodium. Scrap rhodium is also scarce.
- Car manufacturers in China and Europe are using more of the rare metal to meet tough environmental norms to maintain clean air. The Chinese car industry recovered fast. Other markets may follow this year after the lifts of the coronavirus-restrictions.
- The supply from South Africa, the largest producer, is affected by Covid. There has been virtually no investment in new mines in the past decades. Some underground mines are not fully functional. One producer closed a plant after an explosion. (Source: The Hindu BusinessLine)
How Rhodium Shares May Become Overvalued
Besides, according to other experts, rhodium is very difficult to substitute. But not only rhodium is rare, but also its exchange-traded commodity by Deutsche Bank too. The issuer doesn’t sell shares of it anymore, so buyers can only purchase it on the stock exchange (in London). A quote from the official documents:
The Issuer hereby gives notice that it has decided to suspend the issuance of further Securities with effect from 11 January 2016. Deutsche Bank AG will only provide “bid pricing” at which investors can sell ETC. (Source: DWS)
What does it mean? Attention, ETFs (exchange-traded funds), ETCs (exchange-traded commodities), and similar products may trade above their net asset value (NAV), or below it. Usually, if the management issues and repurchases the shares continuously, this difference is modest. But if the issuance is suspended, the buyers may drive the price to a high level over the NAV. There may be large differences between the market price and the NAV, and shares may become fundamentally overvalued.
I suppose the price of the shares today is near the NAV of last Friday. But take care if the prices rise again. (You can check the NAV on this page, with a delay.)
Important Rhodium Miners
Another investment alternative is buying shares of mining companies. The largest rhodium producers, Northam Platinum and Impala Platinum are listed primarily in Johannesburg, South Africa. (But also available in the OTC market in the US and Germany.) The big multinational commodity holding Anglo American is another main rhodium (and platinum) producer. But much of its revenue comes from other raw materials. (Rhodium can’t be found in pure form. It is a byproduct of platinum, nickel, and palladium mining output.)
What do you think about the future of the rhodium price? Or the outlook of the fossil-fueled car industry, the catalytic converters? Please, comment here or on my social media pages: