Investing.com — UBS analysts highlighted palladium as the worst-performing precious metal, reflecting a 12% decline so far this year.
The bank said in a note Tuesday that they attribute the underperformance to heightened volatility and a challenging demand outlook.
Recent speculation about potential G7 sanctions on Russian palladium exports caused a temporary price spike of nearly $200 per ounce, reaching $1,248 on October 29.
However, the bank notes that with no sanctions implemented and a stronger U.S. dollar, palladium prices have since fallen below $1,000 per ounce.
UBS points out that Russia accounts for over 40% of global palladium mine supply. While a ban on Russian exports could lead to shortages in Western markets, the analysts remain skeptical that the G7 will enact such measures.
They explain that Russian palladium has already been redirected to Eastern markets, diminishing the immediate impact of such sanctions.
Despite near-term supply tightness, UBS holds a neutral 12-month outlook for palladium. The analysts warn that only high-risk investors should consider trading the metal due to its low trading volumes and limited market size.
“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,” said UBS.
Longer term, they believe palladium faces significant headwinds as the auto industry shifts away from internal combustion engines, which rely on palladium-based autocatalysts, toward battery electric vehicles. This structural decline in demand is expected to lead to oversupply in the coming years.
UBS acknowledges some temporary supportive factors, such as stalled electrification rates in the global vehicle market. Many consumers are opting for hybrid vehicles, which still require palladium and other platinum group metals.
Nevertheless, the bank remains “constructive” on other precious metals but views palladium’s outlook as fundamentally weaker, with risks skewed to the downside over the longer term.
