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 on Tuesday that it attributes the underperformance to increased volatility and a challenging demand outlook.
Recent speculation about possible G7 sanctions on Russian palladium exports caused a temporary price spike of almost $200 per ounce, reaching $1,248 on October 29.
However, the bank notes that without sanctions and a stronger US dollar, palladium prices have since fallen below $1,000 per ounce.
UBS points out that Russia accounts for more than 40% of the global supply of palladium mines. While a ban on Russian exports could lead to shortages in Western markets, analysts remain skeptical that the G7 will take such measures.
They explain that Russian palladium has already been redirected to Eastern markets, reducing the immediate impact of such sanctions.
Despite the short-term tightness, UBS has a neutral outlook for palladium over the next 12 months. The analysts caution that only high-risk investors should consider trading the metal due to its low trading volumes and limited market size.
“While we have a neutral outlook for palladium over the next 12 months, we believe the long-term outlook for palladium remains negative as there is expected to be an oversupply of this metal,” UBS said.
Longer term, they believe palladium faces significant headwinds as the auto industry turns away from internal combustion engines, which rely on palladium-based automotive catalysts, toward battery-electric vehicles. This structural decline in demand is expected to lead to oversupply in the coming years.
UBS acknowledges some temporary supporting factors, such as stalled electrification rates in the global auto 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 the outlook for palladium as fundamentally weaker, with longer-term risks skewed to the downside.
