UBS noted a shift in sentiment among options market players regarding palladium prices. Despite recent increases in net long positions of non-commercial accounts, the outlook for palladium has turned negative. The changes in the market have resulted in a slight price decrease compared to the position on March 11.
Sentiment in the options market has changed, with a marginal downward trend currently. This is reflected in the costs of call and put options, which reflect the market’s risk assessment. The risk reversal rate, which represents the volatility difference between call and put options, ranges from 0 to -5.2% for the next one to six months.
UBS has forecast a modest surplus in the palladium market, with a surplus of 50,000 ounces, or 0.5% of demand, this year. This surplus is expected to contribute to a downward trend in palladium prices, with a target of $900 per ounce by the end of 2024. The company maintains a negative view on the metal’s future pricing.
The expected oversupply is attributed to a decline in demand for automotive catalysts, which currently account for around 90% of palladium consumption. UBS predicts a 2% contraction in total demand in 2024.
Given these factors, UBS advises that only investors with a high risk tolerance should consider getting involved with palladium, citing low trading volumes and limited market size as additional reasons for caution.
InvestingPro Insights
While UBS signals a bearish outlook for palladium, recent data from InvestingPro underlines the precarious financial health of companies within this sector. One notable company in the industry is currently facing a challenging financial situation, as evidenced by its negative price/earnings ratio (P/E) of -5.95, which has further deteriorated to -5.95 over the last twelve months as of Q3 2023. 6.22. This indicates that investors are wary of the company’s profitability prospects.
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Moreover, the company’s Return on Assets (RoA) for the same period is a whopping -346.49%, which indicates that the company is not generating positive income from its assets. In line with broader market sentiment, the company’s 1 Year Price Total Return as of April 14, 2024 has declined by -16.67%, reflecting reduced investor confidence.
It’s not all negative, though. The company has seen remarkable EBITDA growth of 52.77% over the past twelve months from Q3 2023, indicating some operational improvements despite tough market conditions. This could be a bright spot for investors looking for signs of a possible turnaround.
InvestingPro Tips suggests that investors should keep a close eye on the company’s next earnings date, April 24, 2024, to gauge any changes in its financial trajectory. Furthermore, with the InvestingPro Fair Value estimated at USD 0.05, significantly below the analyst target of USD 0.35, there could be an opportunity for investors to reassess the company’s valuation.
For those interested in a deeper analysis, InvestingPro offers 5 additional tips, which provide a comprehensive toolkit for making informed investment decisions. Use the coupon code PRONEWS24 to get an additional 10% off an annual or biennial Pro and Pro+ subscription, and unlock the full potential of InvestingPro’s insights.
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