Investing.com – UBS analysts predict a challenging year ahead for palladium, with the metal expected to “lag other precious metals.”

Analysts at the investment bank expect a deficit of around 300,000 ounces, or 3% of demand, by 2025, noting that palladium fundamentals have “weakened significantly over the past few years.”

Analysts forecast “lower mine supply to be offset by higher scrap supply,” maintaining overall stability in overall supply.

However, they emphasize palladium’s significant dependence on autocatalyst demand. With the growing trend of replacing palladium with platinum and the increasing adoption of electric vehicles, the outlook for palladium remains bleak.

“The future remains bleak for palladium,” said UBS, due to these changes in demand.

A critical factor affecting prices is the geopolitical landscape. “The biggest risk to the price increase is for international sanctions targeting Russian mine supply,” analysts said.

While there is a redirection of flows from Russia to China, UBS says that no sanctions on mine supply have been imposed yet.

Despite the softening fundamentals, UBS maintains a “moderately positive price outlook,” driven in part by potential growth in auto production.

They believe that lower interest rates could increase car affordability, which could lead to increased demand for autocatalysts.

However, palladium’s reliance on the automotive sector, particularly in an industry in transition, leaves it vulnerable, according to the bank.

“Only investors with a high risk tolerance should consider trading in palladium due to low trading volume and limited market size,” UBS concluded.