By Jesse Riseborough and Xiao Yu, Bloomberg
Melbourne: The rise of global ‘Green Power’ is boosting the prices of platinum group metals used in devices to cut tailpipe gas emissions. Merrill Lynch & Co. and JPMorgan Chase & Co. say rhodium may rise by about a quarter in 2007.
“This ‘green planet’ thing is really taking off,” Steve Shepherd, a JPMorgan analyst who’s forecasting a 24% gain in average rhodium prices, said in a 22 March interview. “These are beneficiaries of that big time.”
Global demand for catalytic converters in autos is soaring because governments are tightening laws on vehicle emissions and as vehicle demand surges in China, the world’s second-largest auto market. Rhodium is a silvery-white by-product of platinum production worth nine times more than gold bullion.
“The global automobile market will grow rapidly led by China,” Jin Xiangyun, an analyst at Beijing Antaike Information Development Co., said on 27 March. “More importantly, more rigid standards to control emissions will be implemented worldwide, which will strongly boost rhodium consumption.”
Rhodium, which has risen 14-fold in the last four years, traded at $6,175 an ounce on 23 March, according to the Metal Bulletin. So far this year, it has risen 11% and averaged $5,900. Platinum futures rose to a record on the Tokyo Commodity Exchange on 26 February and platinum for immediate delivery reached a record $1,402.50 on 21November. Spot platinum has risen by 9.3% this year.
The price of rhodium may rise by a quarter to average $5,638 this year, Merrill Lynch analysts led by Vicky Binns said in a 14 March report, telling clients to be “long” platinum stocks such as Anglo Platinum Ltd., the world’s biggest producer of the metal. The stock has risen by 26% this year.
European Union leaders this month set tighter targets for cutting greenhouse gases and curbing the use of fossil fuels. European regulators recommended a cap on carbon-dioxide emissions from cars, setting up a clash with automakers as Europe extends a campaign against global warming.
“The difficult part is the far eastern markets of the likes of China, maybe India -- they are all talking about exhaust emission standards, but we haven’t got a clue what they are going to do,” said JPMorgan’s Shepherd from Johannesburg. The bank’s boosted its long-term platinum price target 19% to $1,100. “These are quite big car markets, and truck markets as well, and growing rapidly.”
Platinum, also used in electronic devices such as iPods and computer hard disks, has gained for four straight years because of the new emissions laws. About a quarter of demand for the metal, which has been in deficit for eight consecutive years, is used in catalytic converters to turn carbon monoxide into less harmful gases. Palladium can be substituted for platinum in gasoline vehicle converters. Spot palladium has gained by 8.5% this year.
Rhodium may keep outpacing other precious metals because it can’t be substituted in diesel versions of the converters, which are used to reduce nitrogen oxides emissions. Johnson Matthey Plc, maker of a third of all auto catalysts sold, said in January it expects higher second-half earnings growth because of gains in trading of precious metals used in converters.
Rhodium is needed “especially in those diesel catalytic converters,” John Lewins, managing director of Platinum Australia Ltd., said in a Feb. 23 interview. “While you need less, there isn’t a substitute, you really have to put rhodium into those catalytic converters.”
Demand for diesel-powered light vehicles is soaring driven by environmental standards, said Lewins. About 60% of light vehicles in Europe were diesel, while in the US it was only about 5%, he said. “There is a general view of something like 5 % growth per annum,” for rhodium, he said. “That is a fairly strongly held view in the industry.”
To be sure, Anglo Platinum is “uncomfortable” with current prices of palladium and rhodium and believes palladium will decline by as much as a third and rhodium by two-thirds in the “long term,” Chief Executive Officer Ralph Havenstein told analysts during the presentation last month. South Africa produces about 90% of global rhodium supply.
Northam Platinum Holdings Ltd., the world’s fourth-largest platinum producer, forecast the price of rhodium may climb to a record $7,500 this year, beating the 1990 all-time high of $7,000, Business Report said on 1 February. It reached a 16-year high of $6,275 last year.
“More stringent emissions regulations will keep demand firm from the autocatalyst sector, the dominant end use accounting for in excess of 80% of demand,” Standard Chartered Plc’s metals analyst Tariq Salaria said in a 13 March report. He’s forecasting a 26% gain in rhodium prices. “In recent years, supply has not been capable of matching the increase in demand.”
Rhodium prices also may keep rising driven by growing demand from Asian manufacturers of flat-panel glass used in computer and television screens, according to Heraeus Holding GmbH, owner of five precious-metals refineries. Liquid crystal display LCD televisions are expected to gain 33% of the global markets this year, from 22 percent in 2006, Standard Chartered said, citing Corning Inc.