Investing.com -- UBS Global Research has maintained its bearish stance on palladium, even as ETF investments in the metal reached a five-year peak in 2024. Despite this influx of capital, the firm remains skeptical about the long-term strength of palladium prices.
Palladium ETF holdings have increased by approximately 138,000 ounces this year, bringing the total to 546,000 ounces—the highest level since early 2019. However, this remains far below the peaks of over 3 million ounces seen in 2014 and 2015.
“Those inflows have mainly come from Europe, and we believe catch-up positioning to other precious metals may have been a factor driving those inflows, said analysts at UBS, contrasting this with the dynamics observed in 2023 when South African ETFs played a more significant role in influencing flows.
This resurgence in European demand may be due to palladium's recent underperformance compared to other precious metals, prompting some investors to position for a potential catch-up. Additionally, there are expectations among some market participants that the metal may be undersupplied this year, which could be driving the increased demand.
Despite the recent uptick in ETF inflows, UBS maintains a negative outlook on palladium, primarily due to structural challenges in the automotive sector—the metal's largest end-use market. Analysts at UBS flag two critical factors that are expected to suppress palladium demand over the long term.
First, the global automotive industry is projected to produce fewer vehicles this year compared to last year, reducing the demand for palladium, which is predominantly used in catalytic converters for gasoline engines.
Second, the ongoing substitution of palladium with platinum in autocatalysts continues to exert downward pressure on demand. Platinum has increasingly been favored in catalytic converters, which poses a long-term challenge to palladium’s market position.
UBS analysts anticipate that palladium prices will fluctuate around $900 per ounce over the next 12 months, reflecting expectations of a slightly oversupplied market.
While some investors might be positioning for a short-term recovery, UBS remains cautious, emphasizing the persistent structural challenges facing palladium.