Palladium prices are likely to come under renewed pressure this year as the market swings from more than a decade of shortages into oversupply, according to UBS.
The bank said the precious metal, widely used in vehicle catalytic converters, was undersupplied in 2025 for the 14th consecutive year.
However, analysts now expect the metal “will shift into a surplus this year… given another year of strong investment demand appears unlikely”.
Scrap supply is “likely to rise further”, with a recent Johnson Matthey PLC (LSE:JMAT) report mentioning the renewal of a vehicle trade-in incentive scheme in China as one factor.
UBS estimates the palladium market was undersupplied by 416,000 ounces last year, equivalent to about 4.1% of global demand, helped by strong investment buying and lower mine production.
But the bank warned that “another year of strong investment demand appears unlikely”, noting that palladium ETF holdings have already started to decline.
At the same time, UBS expects higher scrap supply and falling demand from the auto sector as production of internal combustion engine vehicles slows. Analysts also pointed to China’s vehicle trade-in incentives as a factor boosting recycling flows.
“With ongoing economic growth concerns and fundamentals set to deteriorate, we reduce our palladium forecasts from USD 1,600/oz to USD 1,400/oz across all tenors,” the bank said.
Palladium traded at about $1,364 an ounce on 22 May, according to UBS data