Palladium Price Forecast: Top Trends That Will Affect Palladium in 2023
Palladium touched a fresh all-time high in 2022 before widespread volatility sent its price 50 percent lower in December. Find out where the metal may go in the year ahead.
With prices spiking to an all-time intraday high of US$3,339 an ounce and falling to a year-to-date-low of US$1,657, there's no question that the palladium market was punctuated by volatility in 2022.
Russia is the world's second largest palladium producer, and according to a report from Johnson Matthey (LSE:JMAT,OTC Pink:JMPLF), the country accounted for 28 percent of primary and secondary palladium supply in 2021. “Palladium peaked … as prices of a range of Russia-exposed commodities surged higher,” the document reads.
The metal's price quickly pulled back to US$2,200 as material from leading Russian palladium producer Norilsk Nickel (MCX:GMKN) continued to reach the market. But another supply speed bump soon emerged.
“The (April 2022) delisting of Russian refiners by the London Platinum and Palladium Market (LPPM) reignited availability fears and spurred the price back above US$2,500,” the market overview states. “The LPPM decision means that ingot and sponge produced by Russian refineries after April 8th will no longer be accepted for ‘Good Delivery’ into the London and Zurich bullion market.”
However, as Wilma Swarts, director of platinum-group metals (PGMs) at Metals Focus, explained, supply troubles out of other regions had a major impact on palladium’s 2022 price story. “The Russian war on Ukraine had a very material impact on the palladium price, but this was primarily due to market speculation rather than weakening regional supply,” Swarts wrote in an email to the Investing News Network (INN). “Mine supply from Russia remained in line with production guidance.”
Instead, the PGMs expert pointed to the auto sector and output hiccups in Africa and North America. “The lower supply stemmed more from the weak automotive recycling market and operational challenges in South African and North American mine supply,” she said. “The delays in the Polokwane smelter rebuild and flood damage in Montana curtailed palladium mine supply.”
Palladium's price performance in 2022.
Chart via TradingEconomics.
Unfortunately, tailwinds from supply disruptions were countered by weak auto demand.
This key end-use segment continues to endure supply chain issues and a semiconductor chip shortage, which are weighing on production and in turn dampening demand for palladium.
Central bankers' commitment to quashing rampant inflation also repressed markets and helped to keep palladium values below US$2,250 from May through to October.
Palladium market shifts back into deficit
Even though annual production has declined since 2019, the palladium market briefly moved into excess in 2021.
“After posting its first surplus in the past 10 years in 2021, palladium will shift back to a significant deficit,” Swarts said. “Like platinum, the market balance results from weaker supply rather than more robust demand.”
In fact, palladium demand has yet to recover to its 2019 pre-pandemic level of 11.4 million ounces. Persistently high prices haven't helped the situation, with substitution in the auto sector taking a toll on the precious metal.
“Palladium automotive demand, aside from the erosion of gasoline light-duty vehicle production, was also negatively impacted by the transition towards higher platinum loadings in autocatalysts at the expense of palladium,” Swarts said. “The slowdown in consumer electronics also weighed on palladium demand.”
The Russia-Ukraine war forced automakers to downgrade their output guidance early in the year, and the market was further impacted in H2, when COVID-19 lockdowns in China heavily impacted auto production.
“According to the China Association of Automobile Manufacturers, total vehicle sales fell by 7.9 percent year-on-year (y/y) in November to 2.33m units, the first y/y decline since May,” a mid-December Metals Focus report reads.
Palladium investment demand contracts further
Unlike other precious metals, palladium has been unable to see upside from investment demand recently.
“Following continuous liquidation of palladium ETFs between 2015 and 2020, total holdings had fallen from a peak of nearly 3 million oz to less than 600,000 oz by the start of 2021,” the Johnson Matthey report notes.
Although the metal rallied to fresh highs from 2020 through 2022, investors have chosen to avoid palladium exposure.
“This is due to a combination of factors, including elevated prices and wide spreads (which limit the upside for investors), along with widespread recognition of the risk posed by BEVs to future palladium demand,” the firm's overview states.
Swarts also pointed to the growing shift toward electric vehicles as a deterrent for palladium investors.
“As an investment metal, palladium has for some time lost its luster as investors take stock of the shift towards electric vehicles and the success in substituting,” she explained to INN. “(In 2022), retail investment is expected to contract by 11 percent and is expected to decline further in 2023.”
Consumer demand will be key to 2023 growth
By December, the palladium price had reached US$1,657, its lowest point since February 2020. The autocatalyst metal quickly rebounded and ended 2022 at US$1,806, representing a 2.06 percent decline from its January starting price.
Although 2022 was volatile, palladium’s performance in the year ahead will rely largely on one factor.
“The health of the automotive sector will remain palladium's leading barometer — after all, the sector accounts for over 80 percent of demand,” Swarts said. Metals Focus sees auto production growth being marginally positive for palladium demand in 2023.
Inflation and its impact on consumer purchasing power is another key area that could have a knock-on effect on the auto supply chain. “A weaker global economy could see weaker consumption negatively impacting palladium demand,” she added.
In terms of supply, the director of PGMs said tracking developments in the Russia-Ukraine war will be key.
“While Russian production remained primarily unaffected during 2022, the self-sanctioning action of equipment suppliers could rein in 2023 production and should be closely monitored,” said Swarts. “Meanwhile, the growth in automotive sales we forecast in 2023 should lead to an improved supply of scrapped vehicles in the recycling market.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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