UBS Global Research Maintains Bearish Stance on Palladium

UBS Global Research maintains its bearish outlook on palladium despite ETF investments reaching a five-year peak in 2024. The firm remains skeptical about the long-term strength of palladium prices.

Palladium ETF holdings increased by approximately 138,000 ounces this year, totaling 546,000 ounces—the highest since early 2019. However, this is still far below the over 3 million ounces seen in 2014 and 2015.

Analysts at UBS noted that the inflows primarily came from Europe, potentially driven by catch-up positioning to other precious metals. This contrasts with 2023 dynamics where South African ETFs had a greater impact on flows.

Increased European demand may stem from palladium’s recent underperformance against other precious metals, encouraging some investors to position for a catch-up. There are also expectations among some market players of an undersupplied market this year, influencing demand.

Despite the uptick in ETF inflows, UBS’s negative outlook on palladium is due to structural challenges in its largest end-use market, the automotive sector. Analysts identified two critical factors that may suppress palladium demand long-term:

1. The global automotive industry is expected to produce fewer vehicles this year than last, decreasing palladium demand used mainly in catalytic converters for gasoline engines.
2. The ongoing substitution of palladium with platinum in autocatalysts continues to create downward pressure on demand, with platinum increasingly preferred in catalytic converters.

UBS analysts project palladium prices will fluctuate around $900 per ounce over the next 12 months, indicating a slightly oversupplied market.

While short-term recovery may entice some investors, UBS remains cautious, stressing continual structural challenges faced by palladium.