Rhodium Market Outlook A comprehensive study of the global rhodium market including projections through 2018 of rhodium supply by mine, demand by end-use, and prices. September 2009 CPM Group 30 Broad Street, 37 th Floor New York, NY 10004 USA Telephone: 212.785.8320 Fax: 212.785.8325 E-mail: info@cpmgroup.com Website: www.cpmgroup.com 1
DISCLAIMER FOR INTERNAL CORPORATE USE ONLY. NOT FOR REPRODUCTION, DISTRIBUTION, OR RETRANSMISSION OUTSIDE OF CPM CLIENT COMPANY WITHOUT WRITTEN CONSENT. CPM Group 30 Broad Street 37 th Floor New York, NY 10004 USA Telephone: 212-785-8320 Telefax: 212-785-8325 E-mail: info@cpmgroup.com Website:http://www.cpmgroup.com Author: Rohit Savant Jeffrey M. Christian, Managing Director Doug Sherrod, Managing Director, Investment Banking Alec Kushnir, Director, Investment Banking Mark Hansen, Director of Price Risk Management Adam J. Crown, Executive Vice President Nichola Eliovits, Associate Carlos Sanchez, Associate Director, Research Catherine Virga, Senior Research Analyst Rohit Savant, Senior Research Analyst Douglas Horn, Research Analyst Chintan Parikh, Research Analyst Jenee Peele, Administrator Madhusudan Daga, Consultant Bhargava Vaidya, Consultant 2009 The information contained here has been obtained from sources we believe to be reliable. We believe this information to be reliable, but do not guarantee its accuracy or completeness. Opinions expressed here represent those of CPM Group at the time of publication. This material is for private use of subscribers. CPM Group is not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here. 2
Executive Summary Chart: The Monthly Average Metals Week New York Dealer Price of Rhodium Price Forecast Base Case Scenario.12 Supply Forecasting Methodology and Assumptions...12 Demand Forecasting Methodology and Assumptions. 15 Chart: Base Case: Rhodium Supply and Demand Fundamentals Supportive of Price Outlook.17 Chart: Base Case: Real and Nominal Rhodium Prices Chart: Base Case: Rhodium Surplus and Deficit Table: Base Case: World Rhodium Supply and Demand Balance Table: Base Case: Rhodium Supply, Demand, and Price Economic Overview The Current Economic Cycle and Longer-Term Economic Trends..... 26 Chart: Relation Between Global Vehicle Sales and Global Gross Domestic Product Chart: U.S. Unemployment Rate Chart: OECD Unemployment Rate Chart: U.S. Personal Savings as Percentage of Disposable Personal Income Chart: Bank Credit of All U.S. Commercial Banks Chart: Real Gross Domestic Product projected through 2014 Chart: Total Loans and Leases - U.S. Commercial Banks Chart: Vehicles Per Thousand People as of 2007 Supply Rhodium Supply Overview... 32 Chart: Total Rhodium Supply (1976 2018p) Map: World Rhodium Mine Production Focus on Rhodium Supply in South Africa.. 34 Mining in South Africa Table: Planned Capacity Expansion at Eskom (2009 2017) Chart: Number of Fatalities in South African Mining Industry Mining the Upper Group 2 (UG2) Ore Body Table: Average Grades of Precious Metals in the Merensky, UG2, and Platreef Ores of South Africa Chart: South African PGM Production Indexed to 100 Table: Percentage of Tonnes Mined from UG2 Reef South African PGM Cash Costs Chart: Average PGM Cash Costs and PGM Prices, Projected Through 2009 Chart: Approximate South African PGM Cash Cost Break Down 3
South African Rand and U.S. Dollar Exchange Rate Chart: Exchange Rate: South African Rand/ U.S. Dollar Effect of Recession on South African Mining Table: Typical Time Line for Platinum Group Metal Projects Mine Production Table: South African Rhodium Mine Production, Projected Through 2018 Focus on Rhodium Supply in Russia 46 Table: Russia Norilsk: Estimated Composition of Platinum Group Metals Ores Table: Russian Rhodium Production and Exports, Projected Through 2018 Mining in Russia Focus on Rhodium Supply in Canada...49 Secondary Supply Focus on Rhodium Secondary Supply..50 Effect of Global Economic Slowdown on Secondary Recovery of Rhodium Chart: Rhodium Secondary Supply and Price The Effect of Scrappage Schemes and Other Incentives Table: Vehicle Scrappage Schemes in Europe and the United States Stricter Emissions Standards and Median Age Thrifting of the Metal in Event of Record High Price Typical Flow of Scrapped Vehicles in Developed Countries Demand Rhodium Fabrication Demand Overview.53 Chart: Annual Rhodium Demand (1976 2018p) Chart: World Rhodium Use Per Capita Rhodium Demand in Automotive Catalysts.56 Rhodium: An Integral Component of Auto Catalysts Chart: Rhodium Demand in Auto Catalysts (1976 2018p) Vehicle Sales Chart: Global Vehicle Sales (1999 2018p) Chart: Vehicle Sales in N. America, Europe, & Japan (1999 2018p) Chart: Vehicle Sales in BRICs (1999 2018p) Table: Global Vehicle Sales (1999 2018p) 4
Trends in the US Auto Market..61 Global Leader No More Chart: Vehicle Sales in the United States (1999 2018p) Chart: Monthly Vehicle Sales in the United States Trending Toward Smaller Vehicles Hybrid Vehicles Chart: Hybrid Vehicle Sales (2004 2018p) Chart: Market Share of Hybrid Vehicle (2004 2018p) Trends in the BRIC Auto Market.65 China Chart: Vehicle Sales in China (1999 2018p) Chart: Monthly Vehicle Sales in China Rising Demand for Large Cars Chart: Annual SUV sales in China Chart: Market Share of SUVs in Chinese Auto Market Brazil Chart: Vehicle Sales in Brazil (1999 2018p) Flex Fuel Vehicles Chart: Flex Fuel Vehicle Sales in Brazil India Chart: Vehicle Sales in India (1999 2018p) Tata Nano Russia Chart: Vehicle Sales in Russia (1999 2018p) Trends in the European Auto Market..73 Chart: Vehicle Sales in Europe (1999 2018p) Central & East European Countries Scrappage Schemes Smaller Engine Sizes Chart: Average Engine Size of Newly Registered Vehicle in Europe Trends in the Japanese Auto Market 76 Chart: Vehicle Sales in Japan (1999 2018p) Gasoline Diesel Engines...77 Global Emissions Standards by Major Market... 78 Chart: Percentage Decline in Nox Emissions from Previous Standards 5
Chart: European Gasoline Passenger Vehicle Emissions Standards Table: Implementation of Emission Standards in Major Vehicle Markets Other End-Uses 80 Chart: Rhodium Demand in Electronics (1976 2018p) Chart: Rhodium Demand in Glass (1976 2018p) Chart: Rhodium Demand in Chemical Catalysts (1976 2018p) Rhodium Demand in Other Smaller Applications Potential Threats to Rhodium Demand...84 Nano Technology Electric Vehicles Other Threats Investment Demand & Consumer Inventories.86 Price Forecasts Alternate Scenarios 87 High Case Scenario....90 Fundamentals Supportive of Price Outlook Chart: High Case: Real and Nominal Rhodium Prices Chart: High Case: Rhodium Supply and Demand Chart: High Case: Rhodium Surplus and Deficit Table: High Case: World Rhodium Supply and Demand Balance Table: High Case: Rhodium Supply, Demand, and Price Low Case Scenario 99 Fundamentals Supportive of Price Outlook Chart: Low Case: Real and Nominal Rhodium Prices Chart: Low Case: Rhodium Supply and Demand Chart: Low Case: Rhodium Surplus and Deficit Table: Low Case: World Rhodium Supply and Demand Balance Table: Low Case: Rhodium Supply, Demand, and Price 6
Select Data Sources: A-1 Specialized Services and Supplies, ANFAVEA, Association for Emissions Control by Catalyst (AECC), Association of European Business (AEB), Automotive News, BASF, Bloomberg, Bureau of Economic Analysis, Bureau of Labor Statistics, CARS.gov, Center for Transportation Analysis, Chamber of Mines of South Africa, China Automotive Information Network, China Daily, Dieselnet.com, Company Sources and Company Annual Reports, Economist Intelligence Unit (EIU), Energy Information Administration (EIA), ESKOM, European Automobile Manufacturers Association (ACEA), Federal Reserve Bank of St. Louis, Hybridcars.com, International Monetary Fund (IMF), Japan Automobile Manufacturers Association (JAMA), J.D. Powers, Metals Economic Group (MEG), South Africa s National Mineral Organization (MINTEK), National Highway Traffic Safety Administration, OICA, Oil and Gas Journal, Raw Materials Data (RMD), Reuters, R.L.Polk, Society of Indian Automobile Manufacturers (SIAM), Umicore, United Nations (U.N.), United States Geological Survey (USGS), University of British Columbia Sauder School of Business Pacific Exchange Rate Services, and CPM Group 7