UBS has observed a change in sentiment among participants in the palladium options market. Despite recent increases in net-long positions by non-commercial accounts, the outlook for palladium has become negative. This has resulted in a modest decline in prices compared to the position on March 11th. The option market’s sentiment has shifted, with a current slight skew towards the downside. This is reflected in the pricing of call and put options, which indicate the market’s assessment of risk. The risk reversal rate, which measures the volatility differential between call and put options, ranges from 0 to -5.2% for the upcoming one to six months. UBS anticipates a modest surplus in the palladium market, projecting an excess of 50,000 ounces, or 0.5% of demand, for this year. This surplus is likely to contribute to a downward trend in palladium prices, with a target of $900 per ounce by the end of 2024. The firm maintains a negative outlook on the metal’s future pricing. The expected oversupply is attributed to a reduction in demand for auto catalysts, which currently account for approximately 90% of palladium usage. UBS forecasts a 2% contraction in total demand in 2024. Given these factors, UBS advises that only investors with a high tolerance for risk should consider engaging with palladium, citing its low trading volumes and limited market size as additional reasons for caution.
UBS Forecasts Palladium Price Decline, Citing Market Sentiment Shift and Oversupply
