South African platinum group metal producers may look into restarting operations, after rhodium prices hit an all-time high in September, according to one of the world's largest PGM refiners Heraeus Precious Metals.
"The rhodium price dipped back below $14,000/oz last week but remains very high, which, combined with a weak rand-dollar exchange rate, has boosted South African producers' profits this year," Heraeus said this week. "With prevailing high prices and supply not expected to keep pace with demand, there is motivation for South Africa's producers to plug the gap."
Rhodium is integral to removing harmful NOx emissions in auto catalysts, but supply is not anticipated to keep up with demand unless mothballed mines in South Africa restart, the refiner said.
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. South Africa accounts for around 80% of global rhodium mined supply.
Heraeus said that over the last decade just over 150,000 oz of rhodium supply was shuttered.
"Conceivably, some capacity could be recommissioned within three years," the refiner said.
Standard Chartered Bank global research precious metals analyst Suki Cooper said mothballed operations may possibly help over the next 12-24 months, but new supply development is likely to materialize only after 2022.
"If we are looking at this from a price point of view the PGM price basket is close to record highs. Most of the time it's looking at the demand profile and there needs to be a strong conviction that that demand will continue to be there over the period when it takes to wrap up a mine because there is a mismatch -- demand can respond much faster than supply can," Cooper told Platts.
"Demand can respond over a matter of weeks, mine supply takes years. When they [the producers] are making an investment decision or re-opening a mine decision, it is not just a single metal decision, it has to be the PGM basket. So from a rhodium stand-point I can see that there is the need certainly to increase supply but that may not be the case say like platinum," Cooper said.
'No quick ounces'
Nedbank analyst Arnold Van Graan told Platts that South African PGM producers are possibly looking at available options in terms of restarting operations, "but it's important to note that there is no such thing as quick ounces."
"Quick ounces is probably at best, when talking about rhodium ounces, 12 months away, when talking about meaningful increase in rhodium output. So I think that's the misnomer, when people think "we can just open up mothballed mines and we are going to get a big supply of rhodium", that's not the case," Van Graan said.
"Then you've got to say 'is there a will to do it?' because what about [state-owned electricity utility] Eskom, what about labor, because you have to remember that if you sign on people and the rhodium price turns, you're going to open up what was previously a marginal mine, because the mothballed mines were closed for a reason," he added.
In September, Macquarie analysts projected an average rhodium price of $14,000/oz for December 2020, $15,000/oz for March 2021, while the average rhodium price for 2021 is expected to be around $14,250/oz, $9,000/oz for 2022, and $5,500/oz for 2023.
Power supply risk
With the South African winter ending around August-September, Van Graan said the country has not experienced serious load shedding for a while, though the electricity system is still constraint.
"The reason we have electricity [at the moment] is because the economy is not pumping. Even if you were to open a mine and you were willing to take on labor, you still have got this Eskom element. I don't think companies are that keen to jump out and build mines," Van Graan said.
This is echoed by CPM Group's head of precious metals research, Rohit Savant, who told Platts that, with South Africa recovering from COVID-19 related underground mine shutdowns earlier this year, there is the an "added threat from Eskom related disruptions to supply."
The Johnson Matthey (JM) rhodium London base price as of 0800 GMT Oct. 13, stood at $13,900/oz, up 6.1% from Oct. 09. The JM rhodium price is for metal in sponge form with minimum purity of 99.9%.
The weekly Platts New York Dealer rhodium price range was assessed a $12,200-$13,800/oz on Oct. 8. The price reflects transactions of rhodium sponge between dealers, refiners/recyclers, investment banks and industrial consumers.
