Palladium in retreat on EV prospects, growth risks

By Ashitha Shivaprasad

(Reuters) - Palladium could extend this year's near 30% price decline as the rapid rise of electric vehicles threatens to hammer demand for the autocatalyst metal at a time broader economic weakness and chart factors are also weighing.

Spot palladium hit a four-year low of $1,269.09 an ounce on Thursday, having fallen more than 60% from a record high of $3,440.76 scaled in 2022 as the war in Ukraine unfolded.

SP Angel analyst John Meyer said that with global EV sales expected to reach around 15 million vehicles this year, sales of palladium, chiefly used to neutralise harmful car emissions, could be impaired by 1.5 million-2.25 million ounces.

The palladium market is still expected to be in undersupply this year, with consultants Metals Focus seeing a deficit of 707,000 ounces and specialist materials maker Johnson Matthey a shortfall of 43,000 ounces in the roughly 10 million ounce a year market.

But in spite of that, "investors and market participants are acutely aware of the longer-term headwinds that automotive offtake is bound to face as a result of electrification, especially for palladium and rhodium", Wilma Swarts, Metals Focus' director of PGMs, said when the forecast was published.

While there are still few battery-powered vehicles in the heavy-duty market, exhaust-free electric vehicles are eating into the palladium-focused light vehicle market, Johnson Matthey said.

In addition, automakers have for some time been shifting from palladium to cheaper platinum to cut costs, with platinum use in typically palladium-intense heavy diesel vehicles hitting an all-time high last year, it added.

Palladium prices could fall to the $1,250 level, Edward Moya, senior market analyst at OANDA, said. "The reason why people are more pessimistic about palladium than platinum is due to adoption of EVs," he said.

Analysts said palladium's bearishness is also being fuelled by broader economic softness and technical factors, with its break through chart support at $1,300 opening the way to its recent low, according to a New York-based independent metals trader Tai Wong.

"There's a lack of interest in the palladium market. The market is short, which essentially implies that the algorithms are following the trend downwards," said Bart Melek, head of commodity strategies at TD Securities.

"If we get a negative scenario where on the demand side, China doesn't stimulate like people are hoping and the interest rate environment remains restrictive, then from a technical point, prices could go to $1,000."

(Reporting by Ashitha Shivaprasad in Bengaluru; Additional reporting by Seher Dareen, Arundhati Sarkar, Brijesh Patel and Arpan Varghese; Editing by Jan Harvey)