When I was at the New York Hard Asset Investment Conference weeks ago, every hour someone would stop by my table, mention the word "rhodium", and walk away. My interest piqued, I decided to look into this mysterious metal.
Rhodium (Rh) is in fact the rarest precious metal in the world, and is also the most valuable. The white metal is used primarily as a catalytic convertor by the auto industry as a much more efficient alternative to platinum and palladium (click here for my outrageously profitable calls on platinum and here for palladium). It is also used in jewelry, the plating of mirrors, and in neutron flux monitors in nuclear power reactors.
South Africa produces 80% of the world's meager 25 metric tonne annual supply, and therein lies the angle. Rolling power shortages in the country has lead to the same intermittent mining stoppages that have affected the other metals.
On the demand side, you can count on a US auto industry that is boosting production from 9.5 million units last year to 15 million units over the next five years to maintain a firm bid. So far, they are running at a 12.5 million annualized rates this year. As a result, rhodium has nearly tripled from its low to $2,200/ounce, but is still well shy of its $10,000 record high.
Rhodium is not exactly easy to buy. There are no futures contracts, and most of the physical production is tied up in long term contracts. Since the metal is so unbelievably hard, it is difficult to work with, and only one company, the Cohen Mint, is offering .999 fine coins and bars (click here for their website). But expect to pay a hefty spread over spot, up to 20%, that is standard for a single source supplier.
A more liquid option can be found through buying the shares of the largest rhodium miners, which often appears alongside platinum, like Anglo American (AAUKY.PK), North American Palladium (PAL), or Stillwater Mining (SWC). Granted, prices here are vastly overheated, as they are for so many commodities. But it is something to keep on your list when we get a substantial sell off in 2011.
And don't tell anyone I told you.
This originally was posted in the Diary of the Mad Hedge Fund Trader.