Palladium may continue to lag behind other precious metals, says UBS

Analysts with UBS, a multinational investment bank, said palladium was likely to continue lagging in performance compared with other precious metals, according to a Reuters report. 

Palladium futures were the worst-performing precious metal in 2024, dropping 12% so far this year. 

The underperformance in palladium prices was due to heightened volatility and a poor demand outlook for the metal, UBS analysts were quoted as saying by Reuters. 

At the time of writing, palladium futures on the New York Mercantile Exchange were $1,030.28 per ounce, up 2.0% from the previous close. 

Prices had risen sharply on Tuesday after falling in the last few trading sessions. Investors resorted to bargain-buying, which propped up prices of the metal. 

The dollar’s weakness against a basket of major currencies also boosted sentiments in the market. A weaker dollar makes commodities priced in the greenback cheaper for overseas buyers. 

Speculations over G7 sanctions on Russian supply

Palladium prices on NYMEX had hit a 10-month high in October on concerns over disruptions in Russian supply. 

The optimism was fueled by the US’ call to the G7 nations to consider further ways of reducing Russia’s revenues by restricting palladium exports. 

Russia contributes around 40% of the total palladium supply. 

However, UBS analysts said that with no sanctions implemented yet and a stronger dollar, palladium had fallen below $1,000 per ounce, according to the Reuters report. 

While a ban on Russian supply would lead to shortages and boost prices, UBS remained skeptical about the implementation of such a ban by the G7 nations. 

They explain that Russian palladium has already been redirected to Eastern markets, diminishing the immediate impact of such sanctions.

Neutral view for palladium

Despite the near-term risks to the palladium supply, UBS held a neutral view of the metal. 

The multinational bank said it holds a 12-month neutral outlook for palladium prices. 

The bank further said that only high-risk investors may consider investing in palladium due to its low trading volumes and limited market size, according to Reuters. 

Reuters quoted UBS in the report:

While we hold a neutral outlook for palladium over the next 12 months, the long-term outlook for palladium remains negative, in our view, as the metal is projected to be oversupplied.

Palladium: poor demand in the long term

UBS believes that in the long-term demand from the auto industry is likely to diminish sharply. 

Demand is likely to be affected as the auto industry shifts away from internal combustion engines, which rely on palladium-based autocatalysts, toward battery electric vehicles. 

This structural decline is expected to result in a significant oversupply in the future, the bank said. 

UBS, however, said that in the short term, the metal may remain in slight demand as few consumers were still opting for hybrid vehicles. These sets of vehicles still require palladium. 

The bank though remained “constructive” on other precious metals, but views palladium’s outlook weak, according to the Reuters report. 

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