Palladium Price Forecast by UBS

Analysts at UBS predict that palladium prices will lag behind other precious metals due to ongoing volatility. Recently, prices have fluctuated above $1,000 per ounce, a trend that is expected to continue given the elevated short positions in the market.

Factors Influencing Price

Despite the short-term tightening in the market, UBS cites several contributing factors. First, a decline in electric vehicle sales this year has maintained demand for palladium in autocatalysts, which account for over 90% of palladium consumption. Additionally, supply cuts from a U.S. palladium mine next year are projected to tighten the market further, prompting UBS to increase their price forecasts by $100 per ounce.

Long-term Outlook

In the long term, however, the outlook for palladium is bleak. The transition from internal combustion engines to battery electric vehicles is expected to oversaturate the market, diminishing demand from the autocatalyst sector. Analysts note that although global car electrification rates have halted, there is still growing consumer preference for hybrid vehicles, which require autocatalysts and thus utilize palladium.

Supply Dynamics

UBS also highlights supply dynamics that contribute to the anticipated tighter market. The fourth-largest palladium producer, holding 14% market share, plans to restructure its U.S. operations due to unfavorable prices, leading to a reduction in platinum group metal production, especially palladium, with an expected cut of around 150,000 ounces (approximately 2.3% of 2023 mine supply).

Conclusion

While UBS maintains a neutral outlook for palladium influenced by short-term factors, they caution that the metal is likely to underperform compared to other precious metals. This is exacerbated by an anticipated increase in scrap supply from old car autocatalysts next year and a sustained trend of substitution in new vehicle autocatalysts, favoring platinum over palladium.