* Investors catch a ride on rising rhodium <RHOD-LON>
* Chinese drive auto industry demand
* Dealers see price rising to $2,000-2,500/oz
By Veronica Brown and Jan Harvey
LONDON, April 22 (Reuters) - Investors are sniffing out new gains for auto-catalyst material rhodium, sensing the metal could gather momentum as end-users build stocks in what might be a signal of moderation in the economic crisis.
Platinum Group Metals, used heavily in the manufacture of auto catalysts, sank with global economic growth. As a result rhodium fell more than 90 percent from a record high above $10,000 per ounce last year to its 2009 low around $1,000.
Prices hovered at the lows as the broader economic crisis tore through the auto sector, but analysts say a brighter demand outlook in China and initiatives -- including German and newly-approved UK scrapping schemes to encourage new car purchases -- is enticing end-users to replenish stocks.
The demand outlook has taken rhodium <RHOD-LON> up almost 40 percent since early last week to $1,625 an ounce. Last week marked the metal's biggest one-week percentage gain since August 2008.
"The PGMs at the moment are very cheap, platinum, palladium and rhodium. There is definitely buying interest out there, especially from the industrials," said Rory McVeigh, senior PGMs trader at Commerzbank.
Analysts and industry insiders say further gains towards $2,000 an ounce and even $2,500 are now a distinct possibility, even though that still leaves prices a substantial distance away from the record high above $10,000 an ounce they hit in June 2008.
"Rhodium is a nasty little metal. It's a dealer market, it's ripe for squeezes and manipulation," an industry source said.
RESILIENT DEMAND
About four-fifths of rhodium is consumed by the auto industry. Global car demand has been boosted by a spate of schemes in which governments offer incentives to car owners to scrap old vehicles in favour of new models.
A 40 percent rise in German car sales in March was attributed to the country's "cash-for-clunkers" scheme and analysts also cite steady demand for replacement catalytic converters. Britain approved a similar plan on Wednesday. [ID:nDARLING]
The impact of such schemes will also be seen as first-quarter sales are published. [nL0232959]
China, a major consumer, has been particularly active traders say, adding that the Chinese government and companies have been taking advantage of cheap prices.
"Not only is autocatalyst the biggest application -- it single-handedly appears to consume more than global mine production with the gap filled largely by recycling from scrapped autocatalysts," said Peter Ryan, senior consultant at metals consultancy GFMS.
"This is indicative of the tension in this market, I would suggest," he added.
Typically in a small and unregulated market like rhodium sellers will hold back from agreeing deals after a spate of accelerated buying, confident they will get higher prices.
However, signs of recovery in the car market are far from definitive, and a dearth of demand is likely to prevent further significant rises in the rhodium price, some dealers said.
Rhodium consumption by the car industry, net of recycling, fell nearly 9 percent to 645,000 ounces in 2008 from 707,000 ounces the year before, according to figures produced by metals consultancy Johnson Matthey.
"We shouldn't forget that there is still a lot of rhodium sitting somewhere which was not used in the last weeks and months," said Andreas Daniel, head trader at German-based Heraeus Metals.
"Those with long positions will take advantage of higher prices and sell into the rally at some stage. Funds probably did not have their best year last year so if they have an opportunity to make a bit of money, I'm sure they will take it."
