UBS expects Palladium prices to drop to $900

Johnson Matthey (LON:), a leading catalyst producer, disclosed that the palladium market experienced a significant undersupply in 2023, with a deficit of 1.017 million ounces, which is about 9.8% of the total demand.

This occurred despite a substantial 35% drop in the price of palladium last year.

The price decline is attributed to industrial consumer destocking, as surging prices in 2022 led to heavy stockpiling, and with the subsequent price fall, perceived supply risks diminished, prompting the destocking activity.

For the current year, Johnson Matthey anticipates a smaller deficit of 358,000 ounces, or 3.7% of the expected demand.

Contrarily, UBS forecasts a slight surplus, citing an increase in mine supply and a reduction in investment demand compared to Johnson Matthey’s projections.

“We retain a negative outlook on the metal, targeting a price drop to USD 900/oz over the next 12 months due to ongoing substitution from palladium to platinum in autocatalysts,” UBS analysts said.

This price target suggests a ~10% downside risk from current levels.

The demand for palladium, however, showed an unexpected increase of nearly 4% year-over-year, bolstered by uses in autocatalysts and growing investment demand.

The production of gasoline vehicles, which climbed by 9% year-over-year to 68.7 million units, has substantially increased the demand for autocatalyst platinum group metals.

This surge in vehicle production pushed the demand by more than 900,000 ounces to nearly 13.1 million ounces, marking the second-highest level ever recorded, with the peak previously reached in 2019.

Platinum was the primary beneficiary of this trend, although palladium demand for autocatalysts also rose by almost 300,000 ounces.

Investment demand for palladium turned positive in 2023, in contrast to the outflows seen in 2022. Mine production increased by over 500,000 ounces to 6.5 million ounces last year due to higher output in Russia.

However, a nearly 400,000-ounce decrease in scrap supply, attributed to less recycling of old vehicles, meant that the total supply only saw a modest rise.

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