Industrial spark plugs, unfortunately for both manufacturers and consumers, depend on two of the scarcest and most difficult to process metals on earth – iridium and rhodium. Iridium is an extremely rare metal, with global mining output averaging just 3 tonnes per year. Rhodium, if anything, is even harder to come by, combining extreme rarity with a very complex and expensive ore extraction process. These metals have always been expensive commodities but, fortunately for both manufacturers and consumers, the volumes required to manufacture spark plugs are extremely small.
Nevertheless, last year’s shocking rise in rhodium and iridium prices has had a direct impact on spark plug manufacturers, affecting both supply and market price. With a 500% increase in raw material costs, it was inevitable that the overheads would eventually filter down to consumers. Official prices for both metals increased on 1st July 2021, and further hikes are expected to come.
What Are The Reasons Behind These Price Rises, The Implications For The Industry, and What Can Spark Plug Users Do About It?
At its root, the current iridium and rhodium price bubble comes from a supply problem, specifically the severe disruption caused by Covid 19 to the principal supply hubs in South Africa. South Africa – one of the world’s leading exporters of precious metals, including members of the platinum group, was brought to a standstill by a severe Covid 19 outbreak in December 2020, during which most exports, mining operations, and extraction plants were suspended.
The demand for iridium and rhodium has gone up thanks to the demands of 5G infrastructure and the green hydrogen sector – the perfect recipe for massive price increases.
What Are The Implications?
Most manufacturers are happy to absorb routine commodity price fluctuations to provide stability and reliability for their customers, but cost increases of this magnitude are impossible to ignore. Therefore, spark plug manufacturers have three options:
1) Continue manufacturing spark plugs as before, and pass on some or all of the cost increase onto the market price of their spark plugs. Even with reduced margins, this could involve significant price hikes.
2) Downgrade the quality of their spark plugs by reducing the grade/purity of iridium and rhodium used, or the quantities used on each spark plug. This could enable manufacturers to sustain prices, but the payoff would be reduced performance.
3) Switch spark plug manufacturing to alternative materials, such as other metals in the platinum group.
What Can Spark Plug Users Do About It?
All this talk about price hikes makes for glum reading, but spark plug users are not entirely short of options. The first course of action is to purchase industrial spark plugs from a supplier who promises to ring fence prices for existing stock (i.e. those components manufactured at lower cost before the prices increased). The second is to explore alternative platinum spark plugs, which in many cases provide equal or similar performance to iridium and rhodium tipped plugs, but for a lower price. What we definitely don’t recommend is to sacrifice quality and performance to secure a lower price. This strategy is very rarely cost-effective long-term and will inevitably damage your brand reputation.
A ray of hope in all this is that the massive increase in prices may not be permanent. Although raw materials producers are often reluctant to reduce prices once they have gone up, they will also be keen to revert to a more sustainable level if excessive prices hit the marketability of their products. Once the pandemic recedes and relative certainty returns to global supply and production networks, the situation that contributed to the price hike should ease off, and prices go down again. In this case, businesses may choose to continue with their usual iridium or rhodium spark plugs and accept reduced margins or temporarily increased prices in the short term.
R&M Walsh are one of the UK’s leading suppliers of industrial spark plugs for stationary engines, providing high quality components at competitive prices. For a free quote, or to discuss your requirements, please get in touch today.