The Rise and Fall of Palladium Prices

Palladium’s All-Time High (ATH) in 2022:

• In March 2022, palladium hit an ATH of over $3,400 per troy ounce.
• This surge was largely due to the Russia-Ukraine war that began in late February 2022.
• Russia, the world’s largest palladium producer, faced potential sanctions, leading investors to stockpile the metal in anticipation of supply disruptions.

Factors Contributing to the Price Decline:

1. Replacement in Industrial Products:
   • The automotive industry, a major consumer of palladium, started using platinum instead due to high palladium prices.
   • This switch reduced demand for palladium, contributing to its price drop.
2. Rise of Electric Vehicles (EVs):
   • EVs, which don’t use catalytic converters, reduced the demand for palladium and platinum.
   • The International Energy Agency noted that 18% of 2023 vehicle production would be electric.
3. Diminished Threat of Russian Supply Disruptions:
   • Russia continued exporting palladium despite the ongoing war.
   • The initial fears of supply interruptions faded, causing prices to drop.

Current Demand and Market Dynamics:

1. Automotive Sector Demand:
   • The automotive industry accounts for over 80% of global palladium demand, primarily for use in catalytic converters.
   • This demand is expected to decline by 3% in 2024 due to slowing light-vehicle production growth, increased market share of BEVs, and a shift towards using platinum​ (Ecotrade Group)​​ (Heraeus)​.
2. Industrial and Investment Demand:
   • Industrial demand for palladium, including applications in electronics and dentistry, is also expected to decrease due to cost-reduction efforts and the use of alternative materials.
   • Retail investment demand, which contracted by 11% in 2022, continued to decline in 2023​ (INN)​​ (Expert Market Research)​.
3. Geopolitical and Supply Factors:
   • Despite the ongoing Russia-Ukraine conflict, Russian palladium production has not been significantly disrupted by sanctions. Russia remains a key player, mining around 40% of the world’s palladium​ (INN)​​ (Kitco)​.
4. Market Outlook:
   • The palladium market is expected to face a deficit in 2024 due to subdued secondary supply and potential production cuts in regions like South Africa and North America. However, this deficit may not significantly boost prices due to existing above-ground stockpiles and the ongoing transition to alternative materials and technologies​ (Ecotrade Group)​​ (Heraeus)​.

Palladium’s Price Outlook:

• The future of palladium prices is uncertain and depends on several factors:
  • The automotive industry’s potential return to using palladium as a cheaper alternative to platinum.
  • The ongoing geopolitical situation involving Russia.
  • The global shift towards electric vehicles, which reduces the demand for palladium.

Investment Considerations:

• Palladium is a high-risk, high-reward investment.
• Its price is influenced by industrial demand, making it volatile.
• Investors should consider their risk tolerance before investing in palladium.

Conclusion:

• Palladium’s price decline is due to reduced industrial demand, the rise of electric vehicles, and continued Russian exports.
• The metal’s future value is uncertain, influenced by both geopolitical and market dynamics. Investors should monitor these factors to understand potential impacts on the palladium market.