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Strong Demand from Auto Firms Propels Rhodium to Record High

(Reuters) – Rhodium prices have surged to record highs on production outages caused by the coronavirus and faster-than-expected demand recovery for the metal used to clean vehicle exhaust fumes.

Prices of rhodium jumped to $14,490 an ounce from around $9,000 in early August, before slipping back to $13,990 on Sept. 23rd.

The rally from below $1,000 an ounce in 2017 was triggered by tightening emissions regulations, which meant automakers accounting for 85% of demand had to use more rhodium.

Demand is recovering at a faster pace than supply, much of it from South Africa, where coronavirus lockdowns disrupted mining, causing rapid price moves in a small and illiquid market.

"A stronger and quicker rebound of auto demand than previously expected, especially out of China, is driving demand and price," said Hans Ritter at Heraeus, a precious metals refiner and trader.

Insufficient supplies meant producers short of metal to honour contracts had been buying in the spot market, a rhodium trader said.

A 17% slump in rhodium supply to 945,000 ounces will leave the market with a 55,000-ounce deficit this year, Heraeus and SFA (Oxford), a research house, said in a recent report.

That would be the third consecutive annual shortfall and the biggest since 2014, they said.

Rhodium production from South Africa, which accounts for more than half of global supply, will fall 20% this year, said Wilma Swarts at consultancy Metals Focus. "It's really difficult to get hold of metal." she said.

Holdings of rhodium in exchange traded funds (ETFs) have risen from around 15,000 ounces in May to around 25,000 ounces – not enough to plug the supply deficit.

Heraeus and SFA expect prices to fall back below $10,000 within six months as supplies normalise, but the market could remain volatile.

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