HG MARKETS:

Analysts at UBS predict that palladium prices will trail those of other precious metals. Palladium’s price volatility, which has experienced swings beyond $1,000 per ounce in recent weeks, was noted by the analysts.  They went on to say that this volatility is probably going to persist in the near future due to the market’s significant short holdings. In contrast to their long-term outlook, UBS identified a number of factors influencing a tighter palladium market. This year’s drop in sales of electric vehicles has contributed to the continued demand for palladium in the auto catalyst industry, which uses more than 90% of the metal. Furthermore, it is anticipated that future supply reductions from an American palladium mine in 2019 will further compress the market, leading UBS to increase their price projections by $100 per ounce. Even with the short-term tightness, palladium’s long-term prospects are still dire. The transition from internal combustion engines to battery electric vehicles is anticipated to result in an excess of the metal due to a decrease in demand from the auto catalyst industry. The researchers noted that although the rate of car electrification worldwide has stopped, consumers are selecting hybrid cars more and more which still require auto catalysts and, hence, palladium. Another factor contributing to the expected tighter market is supply dynamics.

Due to negative pricing, UBS said that the fourth-largest palladium producer, with a 14% market share, intends to restructure its U.S. operations. The production of platinum group metals, especially palladium, is anticipated to decrease as a result of this restructure by about 150,000 ounces, or roughly 2.3% of the mine supply in 2023. In light of these immediate circumstances, UBS has shifted to a more neutral outlook for palladium, although they nevertheless issue a warning that the commodity is likely to perform worse than other precious metals. This view is supported by the fact that scrap auto catalysts from older cars are expected to increase in supply the next year and that new car auto catalysts are continuing to substitute platinum against palladium.