Palladium Prices Expected to Lag Behind Other Precious Metals, UBS Analysts Predict Volatility
UBS analysts have forecasted that palladium prices will continue to lag behind other precious metals due to the metal’s volatile nature. In recent weeks, palladium prices have fluctuated above $1,000 per ounce, with elevated short positions in the market indicating that this volatility is likely to persist in the near term.
Several factors have contributed to a tighter palladium market, including a decline in electric vehicle sales this year, which has sustained demand for palladium in autocatalysts. Additionally, upcoming supply cuts from a U.S. palladium mine next year are expected to further tighten the market, leading UBS to raise their price forecasts by $100 per ounce.
Despite short-term tightening, the long-term outlook for palladium remains bleak as the shift from internal combustion engines to battery electric vehicles is expected to oversupply the metal. While global car electrification rates have stalled, consumers are increasingly favoring hybrid vehicles that still rely on autocatalysts and, consequently, palladium.
Supply dynamics also play a role in the anticipated tighter market, as the fourth-largest palladium producer plans to restructure its U.S. operations due to unfavorable pricing. This restructuring will result in a reduction in group metal production, particularly palladium, with an expected cut of around 150,000 ounces.
UBS has adopted a more neutral outlook for palladium amid these short-term factors, cautioning that the metal is likely to underperform compared to other precious metals. This perspective is supported by an anticipated increase in scrap supply from old car autocatalysts next year, as well as a continuing trend of substitution in new vehicle autocatalysts favoring platinum over palladium.
In conclusion, while short-term factors may lead to a tighter palladium market, the long-term outlook suggests that palladium prices may not perform as well as other precious metals due to changing consumer preferences and supply dynamics. Investors should consider these factors when making decisions about their investment portfolios.