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Essential guidance on economics exam technique: Ten ways to turn a good economics exam paper into a great one Weesteps to evaluation - maximise your A2 economics marks Revision materials on the Economics blog: AS Micro | AS Macro | A2 Micro | AS Macro AS Markets & Market SystemsMarket for Rhodium |
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The Market for Rhodium Something rather exceptional has been happening in the international markets for niche rare metals. Take the little known metal rhodium as an example. As the chart demonstrates, the world price measured in US dollars per ounce has climbed to unprecedented heights during the first half of 2006, indeed by the end of May this year the spot price had reached nearly $6,300 per ounce, more than seven times the average price at the start of 2004 before falling back from these high levels. Commodity markets around the world have seen super-spikes in prices and they provide economists with a terrific window on what can happen to the prices of commodities when the conditions of demand and supply move in particular directions.
Consumers who have bought a new LCD flat-screen television or a fibre glass yacht will have indirectly contributed to the boom in rhodium prices over the last couple of years. Rhodium is a silvery-white hard transition metal and it has a solid claim to be among the world’s most expensive precious metals. The primary use of rhodium is as an alloying agent for hardening platinum and palladium and these alloys are used in electrodes for items such as aircraft spark plugs, precision optical instruments and in jewellery. Missile technology, LCD television screens and catalytic converters all make use of rhodium as a key component. Purchases worldwide of rhodium expanded by 11 per cent to 812,000 oz in 2005, equalling the previous high recorded in 2000. On the supply side, South Africa accounts for the majority of the world's rhodium supply, in fact in 2005, the South Africans contributed over 83% of total output. Russia is the second largest producer although its output, subject to the vagaries of political control, tends to be more volatile, production in Russia dipped by ten per cent last year. The market for rhodium really is small, to put it into perspective, the value of the commodity bought and sold is around a tenth of the size of platinum and palladium. But limited supply and strong market demand means that the world price of rhodium can move in only one direction. Although there has been some speculative element to the recent price surge, the fundamental reasons lie firmly in the changing balance between demand and supply. After several years of surplus with short run supply exceeding demand, the rhodium market moved into heavy deficit in 2005 and in the early months of 2006. Prices are starting to fall back from their stratospheric highs as speculators take profits, and some car producers start to look at ways of taking rhodium out of the production of catalytic converters. But such changes in production techniques can take years to show through and, for the moment, the world price of one of our scarcest precious metals looks set to remain as hard and durable as the commodity itself. A simple question of market supply and demand
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| Author: Geoff Riley, Eton College, September 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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