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<p>[QUOTE=&quot;NorthKorea, post: 2780143, member: 29643&quot;]Before going into 2008, I want to know why no one has mentioned that rhodium&#039;s primary use (on the scale of 98-99% of global consumption) is as a catalyst. Its specific consumption is in the production of fiber optics, but is recovered near 100% from that.</p><p><br /></p><p>Now onto 2008... 2007 ended with an expected shortage of rhodium supply, relative to consumption. This was exacerbated by fears in 2008 that an African mine would be short of power due to gov&#039;t decisions to divert energy to consumers, rather than industry. This was later found to be false, as the gov&#039;t chose to allow PGM miners/refiners to use the energy, as those industries generated the highest return per kwh. Thinly traded supply led to a spike and crash, based upon the rumor and reality.</p><p><br /></p><p>Now, there&#039;s an alternate theory posited by Jack Lifton, that is a great read (<a href="http://www.resourceinvestor.com/2008/08/20/can-one-mans-actions-take-6-billion-value-out-minor-metal-market-month" target="_blank" class="externalLink ProxyLink" data-proxy-href="http://www.resourceinvestor.com/2008/08/20/can-one-mans-actions-take-6-billion-value-out-minor-metal-market-month" rel="nofollow">http://www.resourceinvestor.com/2008/08/20/can-one-mans-actions-take-6-billion-value-out-minor-metal-market-month</a>): He basically claims that the reason for the spike/crash was due to someone selling down rhodium stock (six months worth) in 2005, under the assumption that the price would never shift. This led to the company paying a premium (additional demand in a thinly traded market) of $2k per oz. In turn, this led to the successor attempting to replenish the stockpile and profit on future demand by buying up 18 months worth of stock. This further drove up short-run demand. Once the stockpile was established, they stopped buying, which cause the price to drop. With the price drop, someone at the company panicked and sold off the stockpile.</p><p><br /></p><p>I like Mr Lifton&#039;s theory a lot better than the South African one, as it&#039;s simply funnier (unless you&#039;re a shareholder of the firm that caused the mess).</p><p><br /></p><p>Realistically, rhodium price is directly driven by demand, as supply of the metal is essentially an afterthought of PGM mining. The industrial consumers have their own recovery systems in place to reuse what they already have, either in house or through a industrial recovery contract. Consumption increases only when additional output is needed. Unless industries that use the metal start seeing accelerated growth, it&#039;s unlikely that the metal will deviate from its historical trendline, absent some sort of odd scenario.</p><p><br /></p><p>Edit:</p><p><br /></p><p>Given rhodium was priced at $790 or so in 2004, and historical inflation sits around 3.22% (ignoring that we have had historically low artificial/official rates of inflation since 2007), a price around $1195. If we take into account the official inflation rates, that comes in closer to $1014.[/QUOTE]</p><p><br /></p>

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