Investing.com – UBS analysts expect a challenging year for palladium, as the metal is expected to lag other precious metals.
The investment bank's analysts expect a deficit of about 300,000 ounces, or 3% of demand, in 2025, noting that palladium's fundamentals have “weakened significantly over the past few years.”
Analysts expect that “lower mine supply will be offset by higher scrap supply,” maintaining overall stability in overall supply.
However, it highlights palladium's high dependence on autocatalyst demand. With the increasing trend of replacing palladium with platinum and the increasing reliance on electric vehicles, the outlook for palladium remains bleak.
“The future remains bleak for palladium,” UBS says, because of these shifts in demand.
One crucial factor that can influence prices is the geopolitical landscape. “The biggest upside risk to prices is that international sanctions will target Russian mine supplies,” analysts point out.
While there has been a redirection of flows from Russia to China, UBS notes that no sanctions have been imposed on mine supplies yet.
Despite the weakening fundamentals, UBS maintains a somewhat positive outlook on prices, driven in part by potential improvements in auto production.
They believe lower interest rates could boost car affordability, which could lead to increased demand for auto-catalysts.
However, palladium's dependence on the automotive sector, especially in an industry in transition, makes it vulnerable, according to the bank.
“Only investors with a high risk tolerance should consider trading palladium given its low trading volume and limited market size,” UBS concludes.
