South African Supply Squeeze: Is Rhodium About to Skyrocket?

Rhodium, a rare and lustrous platinum group metal (PGM), is primarily sourced from South Africa. With South Africa responsible for approximately 80% of the global rhodium output, any disruption in the region can have immediate and dramatic effects on the market. The question on many investors’ and industry stakeholders’ minds is: could a South African supply squeeze send rhodium prices skyrocketing? Considering that a trade disruption of rhodium from South Africa could cost the U.S. over $64 billion in GDP, the answer could very well be yes.

What is Rhodium and Why Does It Matter?

Rhodium is a silvery-white metallic element that is highly resistant to corrosion and exceptionally reflective. It belongs to the platinum group metals (PGMs), which also include platinum, palladium, iridium, osmium, and ruthenium. Rhodium is one of the rarest and most valuable precious metals in the world. Its distribution equals about 1% of gold’s availability.

The primary use for rhodium is in automotive catalytic converters, where it reduces the amount of nitrogen oxides (NOx) exhaust gases emitted into the atmosphere. As environmental regulations become more stringent worldwide, the demand for rhodium is expected to increase further. Rhodium is also used in the production of electronic components, nuclear reactors, mirrors, and jewellery.

South Africa’s Dominance and its Discontents

South Africa is the dominant producer of rhodium, accounting for nearly 80% of global rhodium output. Russia and Canada account for the remaining 20% of global rhodium production. This concentration of supply makes the rhodium market particularly vulnerable to disruptions.

Several factors can affect rhodium production in South Africa, including:

Political instability: Political and economic factors in South Africa can impact the supply of rhodium and contribute to its price volatility.
Strikes and labor unrest: The mining and production of rhodium in South Africa has in the past been affected by political instability, strikes, and labor unrest.
Power outages: Power outages and rising electricity costs are significantly undermining productivity and global competitiveness.
Safety-related shutdowns: In 2024 and early 2025, a combination of power outages, labor disputes, and safety-related shutdowns in South African mines curtailed production significantly.
Deteriorating infrastructure: Deteriorating water infrastructure is also a critical roadblock.
High crime rates: High crime rates are a critical roadblock.

Any disruption in the region has immediate and often dramatic effects on the market. In one striking instance, a major South African PGM producer announced a temporary closure of two shafts due to unplanned maintenance and safety evaluations. This alone contributed to a nearly 20% spike in rhodium prices within days.

Demand Drivers: Automotive Industry and Beyond

The automotive industry is the largest consumer of rhodium, accounting for approximately 85-90% of global demand. Automobile manufacturers use rhodium in catalytic converters to reduce harmful emissions, especially nitrogen oxides. The increasing demand for electric vehicles (EVs) has led to a surge in rhodium prices. EVs require more sophisticated catalytic converters to reduce emissions, which has increased the demand for rhodium.

The increasing demand from the automotive industry, especially with new emission standards in China, India, and Europe, suggests a continued strong demand for rhodium in catalytic converters, bolstering its market value.

Other sectors, such as electronics and the chemical industry, further boost the demand for rhodium. Its use in high-quality glass manufacturing and as a catalyst in chemical reactions is expected to contribute to this increased demand.

Rhodium Price Volatility: A History of Swings

Rhodium prices are notoriously volatile, influenced by supply disruptions, demand fluctuations, and investor sentiment. Historically, Rhodium reached an all time high of 29800 in March of 2021.

Supply Constraints: South Africa accounts for over 80% of global rhodium production. Any disruption in the region has immediate and often dramatic effects on the market.
Automotive Demand: Automobile manufacturers are the largest consumers of rhodium, accounting for approximately 85-90% of global demand.
Investor Speculation: In times of economic uncertainty, commodities such as rhodium often attract speculative interest.
Weakening U.S. Dollar: Precious metals often benefit from a weaker U.S. dollar, and rhodium is no exception.
Stockpiling: Strategic purchasing by manufacturers also influences prices.

Market Forecasts and Expert Opinions

The global rhodium market was valued at US$2,118.1M in 2022 and is anticipated to reach US$2,926M by 2029, witnessing a CAGR of 4.6% during the forecast period 2023-2029. Rhodium is expected to trade at US$3,990.94 per troy ounce.

Heraeus Precious Metals holds a negative outlook on rhodium due to its dependence on automotive demand. Heraeus anticipates a smaller deficit this year, due to improved supply and modest demand growth. Rhodium prices should range from $4,400 to $5,400 per troy ounce by 2025.

Metals Focus said average prices for platinum and rhodium are expected to rise by 1% and 8%, respectively, this year, while palladium will see a 5% price reduction.

Investment Considerations

Rhodium can be a tricky metal for investing. While the demand for rhodium outweighs the supply, it still has a very specific market, which can make selling difficult. The possibility of rhodium prices rising might be attractive, but you should know that this isn’t a guarantee; nor is it a steady market.

Navigating the Rhodium Market

Given the complexities and volatility of the rhodium market, what steps can industry participants and investors take to navigate these uncertain waters?

Diversify Sourcing: Reduce reliance on South African supply by exploring alternative sources, including recycling and other PGM-producing regions.
Strategic Stockpiling: Maintain adequate rhodium inventories to buffer against potential supply disruptions.
Hedging Strategies: Utilize hedging instruments to mitigate price volatility.
Recycling Initiatives: Support and invest in rhodium recycling programs to augment supply and reduce environmental impact.
Monitor Market Dynamics: Stay informed about geopolitical developments, mining operations, and automotive industry trends that could impact rhodium prices.

Conclusion: Is Rhodium About to Skyrocket?

The potential for a South African supply squeeze is a real and present danger to the rhodium market. Factors such as political instability, labor unrest, power outages, and infrastructure challenges could all contribute to a significant disruption in supply, potentially sending prices soaring.

While the future is uncertain, one thing is clear: rhodium is a strategic metal with a vital role in various industries. Its unique properties and limited supply make it a valuable commodity, but also one that is subject to significant price volatility. Staying informed, diversifying sourcing, and implementing proactive risk management strategies are essential for navigating the complexities of the rhodium market.

Disclaimer: This blog post is for informational purposes only and does not constitute financial advice. Always consult with a qualified professional before making any investment decisions.