DECLINE OF RHODIUM PRICE AND ITS IMPACT ON PGM REFINERIES
POSTED BY PRADIPA (TA)
Rhodium, known for its high value used in catalytic converters and various products, experienced a significant surge in price, reaching nearly $30,000 over the past two years, capturing widespread attention.
However, the situation has taken a turn as the rhodium price has now dropped by 79% from its peak in March 2021. While such fluctuations are common for rhodium, the current decline resembles the 2000-2003 period more than the rapid drop seen in 2008 when prices fell by 90%.
The price decline is occurring despite potential supply risks. South Africa's power utility, Eskom, is facing electricity generation capacity issues, leading to power cuts as maintenance work keeps power stations offline. As the winter season approaches in the Southern Hemisphere, there could be even more severe power cuts. If miners are forced to use less power, it could affect the production of rhodium and potentially cause a temporary increase in its price. However, the looming recession raises concerns about the future demand outlook, which could further deteriorate the price trend.
Furthermore, the rise of Battery Electric Vehicles (BEVs) has contributed to the decline in rhodium prices. BEVs are gaining market share, reducing the need for rhodium in autocatalysts. In China alone, BEV sales exceeded 5 million units, representing a 21% market share. The EU and the US also experienced significant BEV market share growth. This shift in the automotive industry further influences the demand for rhodium.
Additionally, the high rhodium price has incentivized thrifting in autocatalysts, particularly in gasoline autocatalysts in China. Chinese automakers enjoy flexibility in catalyst certifications, enabling them to adjust loadings more easily and reduce the reliance on rhodium.
Another factor affecting the decline in rhodium prices is China's destocking efforts, as highlighted by the actions of Shandong Fiberglass Group. By selling a substantial amount of rhodium powder, Shandong Fiberglass aims to improve its financial performance. These sales, amounting to CNY 313 million, have already accounted for nearly half of the company's 2021 net profit. While the firm faced a downward cycle in 2022, these sales are expected to mitigate the impact. Moreover, Shandong Fiberglass still possesses additional inventory for potential future financial gains.
Fundamentally, rhodium plays a crucial role in automotive catalyst systems, specifically in reducing NOx emissions, with no direct substitute available. Despite being considered undervalued from a fundamental standpoint, recent significant price declines have caused technical and psychological damage to the market, potentially delaying any price recoveries.
Refinery's Effect on Profit Loss
The drop in rhodium price and the associated market conditions can have several impacts on refinery companies. Refinery companies specializing in rhodium refining and production may experience reduced profitability as the declining price reduces profit margins. This can affect the overall financial performance of these companies.
Furthermore, refinery companies may face decreased demand for their refining services if the market outlook worsens or the demand for rhodium diminishes. As the recession looms and the demand outlook for rhodium deteriorates, manufacturers and other industries may reduce their rhodium-related activities, resulting in a decreased need for refining services.
Umicore, a prominent refiner, serves as an example of a company affected by the decline in rhodium price and is currently facing scrutiny over its financial results. Several financial analysts have lowered their price targets for Umicore, anticipating the negative impact of the rhodium price decline on the company's performance.
It's worth noting that in 2022, Umicore reported a decrease in earnings before interest and taxes (EBIT) to 865 million euros, marking an 11% decline. In mid-February, when Umicore published its annual results, the company had already expected lower adjusted EBIT and EBITDA figures for 2023 compared to 2022. At that time, market expectations stood at 764 million euros.
Given the changing market dynamics and the challenges posed by the current situation, refinery companies may need to adjust their strategies. Adapting to evolving market conditions and identifying new opportunities will be crucial for refinery companies to navigate through this period of decreased rhodium prices and supply risks.
