Rhodium - Catch-up Potential?
I have been fairly vocal about my bullish view on precious metals for quite a while. And with yesterday's surge in prices, I am quite content to ride my positions. However, adding to one's holdings at decent prices has become problematic as most of the corrections have been shallow, not really affording proper buying opportunities.
Is there a way of still accessing the precious metals complex at relatively good prices? Perhaps. I have never paid much attention to the lesser known of the platinum group metals (PGMs), namely rhodium, but playing around with some commodity charts on the Global InfoMine site caused me to focus on this somewhat unknown metal. The chart below highlights how severe the plunge of rhodium in 2008 was and how "tame" the subsequent recovery has been, at least when compared with other precious metals.
Source: Global InfoMine
In an attempt to gain some knowledge of rhodium, I have gathered the following information (mostly from a GoldCore article on Seeking Alpha):
• Rhodium's primary use is in catalytic converters in automobiles. Supply deficits caused the price spike to $10,000 in 2008, followed by a 90% decline as a result of the plunge in car sales during the "Great Recession".
• The current price of rhodium is $2,400 compared with a recession low of $1,000 and an average nominal price of over the last 40 years of approximately $1,500/oz.
• Rhodium is finite and the rarest of the precious metals - the annual production of rhodium is approximately 1/100th that of gold. (In 2009 25 tonnes of rhodium was produced, 2,350 tonnes of gold and 200 tonnes of platinum.)
The U.S. and European automobile industries are the largest consumers of rhodium, but it is expected that China, India and other emerging markets will in future be the driving force of demand.
• Rhodium is mined together with the other PGMs, with South Africa producing more than 80% of the annual rhodium supply.
It certainly would seem that rhodium is worth a second look, especially if one is bullish on precious metals and believes in urbanization as a major secular theme. Arguing the investment merit is the easy part; investing in rhodium is somewhat more difficult.
The miners involved with the extraction of rhodium are mega companies (Anglo Platinum, Impala Platinum, Xtrata, etc.) with rhodium only contributing a relatively minor portion of their production. Rhodium bars and coins are available through The Cohen Mint, but at a very steep premium of 20%. In the absence of exchange-traded funds, the only manner I could identify of investing in rhodium is through a Kitco rhodium pool account or by buying Royal Bank of Scotland perpetual options through the Scoach or Euwax exchanges in Germany (tickers: AAOXEK or AAOXEJ).
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
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