UBS Analysts Predict Challenging Year Ahead for Palladium, Outlook Remains Dim
UBS analysts have forecasted a tough year for palladium, with the metal expected to “lag other precious metals.” The investment bank anticipates a deficit of around 300,000 ounces in 2025, highlighting the weakening fundamentals of palladium over the past few years.
The analysts predict that lower mine supply will be offset by higher scrap supply, maintaining overall stability in total supply. However, they point out the significant dependence of palladium on autocatalyst demand, with the growing trend of substituting palladium with platinum and the rise of electric vehicles contributing to a dim outlook for palladium.
One critical factor that could impact prices is the geopolitical landscape. UBS notes that the biggest upside price risk is for international sanctions to target Russian mine supply, although no sanctions have been imposed yet. Despite these challenges, UBS maintains a moderately positive price outlook for palladium, driven partly by potential improvements in auto production.
The bank believes that lower interest rates could boost auto affordability, leading to increased demand for autocatalysts. However, palladium’s dependency on the automotive sector, especially in a transitioning industry, leaves it vulnerable.
In conclusion, UBS advises that only investors with a high risk tolerance should consider trading in palladium due to its low trading volumes and limited market size. The future of palladium remains uncertain, with various factors influencing its price and demand.
Analysis:
UBS analysts are warning investors about the challenging year ahead for palladium, as the metal is expected to face difficulties compared to other precious metals. The weakening fundamentals and significant dependence on autocatalyst demand are key factors contributing to the dim outlook for palladium. Additionally, the geopolitical landscape and potential international sanctions targeting Russian mine supply could impact prices. Despite a moderately positive price outlook driven by potential improvements in auto production, palladium remains vulnerable due to its dependency on the automotive sector. Investors should carefully consider the risks before trading in palladium.