UBS Anticipates Palladium Prices Will Fall to $900

Johnson Matthey, a prominent producer of catalysts, reported a notable undersupply in the palladium market for 2023, with a shortfall of 1.017 million ounces, amounting to approximately 9.8% of the total demand. This imbalance occurred despite a significant price drop of 35% for palladium last year.

The decline in price is largely attributed to industrial consumers reducing their stock levels. Following substantial price increases in 2022, many businesses stocked up, but as prices fell, perceived supply risks diminished, leading to destocking.

Looking ahead, Johnson Matthey projects a smaller deficit for the current year, estimating it at 358,000 ounces, or 3.7% of anticipated demand. Meanwhile, UBS predicts a slight surplus, citing increased mine supply and a decrease in investment demand, contrasting with Johnson Matthey’s views.

UBS analysts maintain a negative outlook on palladium, forecasting a price drop to around $900 per ounce over the next year due to ongoing shifts from palladium to platinum in autocatalyst applications. This target suggests a potential downside of about 10% from current prices.

Interestingly, demand for palladium has seen an unexpected growth of nearly 4% year-over-year, driven by its use in autocatalysts and rising investment interest. The production of gasoline vehicles rose by 9% year-over-year to 68.7 million units, boosting the demand for platinum group metals used in autocatalysts. This increase led to demand rising by over 900,000 ounces to nearly 13.1 million ounces, making it the second-highest level on record, just below the peak seen in 2019.

Platinum has notably benefitted from this trend, although the demand for palladium for autocatalysts also increased by almost 300,000 ounces. Investment demand for palladium shifted positively in 2023, reversing the outflows seen in 2022. Mine production rose by more than 500,000 ounces to reach 6.5 million ounces last year, largely due to higher output in Russia. However, a nearly 400,000-ounce decline in scrap supply, resulting from reduced recycling of older vehicles, meant that total supply saw only a modest increase.