Investing.com -- UBS analysts forecast a challenging year ahead for palladium, with the metal expected to "lag other precious metals."
The investment bank’s analysts anticipate a deficit of around 300,000 ounces, or 3% of demand, in 2025, noting that palladium’s fundamentals have "weakened considerably over the past few years."
The analysts predict "lower mine supply to be offset by higher scrap supply," maintaining overall stability in total supply.
However, they highlight the significant dependence of palladium on autocatalyst demand. With the growing trend of substituting palladium with platinum and the increasing adoption of electric vehicles, the outlook for palladium remains dim.
“The future remains bleak for palladium," UBS states, due to these shifts in demand.
A critical factor that could impact prices is the geopolitical landscape. "The biggest upside price risk is for international sanctions to target Russian mine supply," the analysts note.
While there has been a redirection of flows from Russia to China, UBS notes that no sanctions on mine supply have been imposed yet.
Despite the softening fundamentals, UBS maintains a "moderately positive price outlook," driven partly by potential improvements in auto production.
They believe lower interest rates could boost auto affordability, which might lead to increased demand for autocatalysts.
Nonetheless, palladium’s dependency on the automotive sector, particularly in a transitioning industry, leaves it vulnerable, according to the bank.
“Only investors with a high risk tolerance should consider trading in palladium given its low trading volumes and limited market size,” concludes UBS.