Demand for rhodium robust after first ETF

The price of rhodium, a little-traded metal prized by the car industry for its qualities as a catalyst, has jumped 20 per cent in the past week after the launch of the first investment vehicle to hold physical rhodium.

Deutsche Bank last week launched an exchange traded fund backed by rhodium on the London Stock Exchange, the first product to allow investors exposure to physical rhodium. Similar products for physical gold, silver, platinum and palladium have been hugely successful in recent years, helping drive prices higher. There is currently more than $100bn invested in such products.

Rhodium, whose annual production is worth about $2bn a year compared to $10bn for platinum and $30bn for silver, is a small niche market dominated by the car industry, which uses the metal in catalytic converters. Until now it has been accessible to only the most dedicated investors.

News of the ETF sent traders scrambling to cover short positions and pushed industrial consumers to cover their needs, creating a large price move in the thinly-traded rhodium spot market, traders said. The price rose 20 per cent from $1,950 a troy ounce early last week to $2,350 on Wednesday, according to data from Johnson Matthey, the precious metals refiner.

The ETF launch was not solely responsible for the price move, traders added, noting that some end users had used a drop in prices after Asian selling the previous week as a buying opportunity.

Deutsche launched the rhodium ETF in order to be able to create another product, which will provide exposure to a diversified basket of physical precious metals containing gold, silver, platinum, palladium and rhodium. In order to comply with Ucits regulations, the fund must contain at least five underlying elements. Deutsche is hoping to attract $200m-$400m of investment into the fund over the next year; given a 14 per cent weighting, that implies investment of about $30m-$60m in rhodium. That would add 15,000-30,000 ounces of rhodium demand, compared to annual supply of 750,000 ounces.

David Jollie, analyst at Mitsui Precious Metals, said: “Rhodium is a small market, certainly in comparison with other precious metals. The worry is that relatively small amounts of money can change the balance of the market.”