By Brijesh Patel and Ashitha Shivaprasad
Palladium prices have tumbled to five-year lows below $1,000 an ounce this week, hastening a retreat triggered by expectations of surpluses due to the rapid spread of electric vehicles and automakers choosing cheaper platinum for their autocatalysts.
Prices of the metal, used by automakers in engine exhausts to reduce emissions, have slumped 70% from all-time highs of $3,440.76 hit after Russia invaded Ukraine.
Spot palladium was last down 4.3% to $948.93 per ounce. Down 45% so far this year, palladium is on course for its worst year of losses since 2008, when the financial crash hit demand.
Top producer Russia's Nornickel expects the palladium market to swing to a surplus of 300,000 ounces in 2024 from a 200,000-ounce deficit in 2023 due to supplies, boosted by recycling, outpacing demand.
"Prices look set to collapse further below $1,000/oz with little support in a market driven lower by worsening demand," said SP angel analyst John Meyer.
Demand for palladium has also come under pressure from the drive to cut carbon emissions from cars with internal combustion engines (ICE) and the shift to battery-powered electric vehicles.
"If...electric vehicle sales increase as a share of total vehicle sales from 14% in 2022 to 18% this year and more than 20% next year then this spells troubles for ICE vehicles and palladium demand," said Marex analyst Edward Meir.
Electric car sales globally are expected to surge 35% this year to 14 million units, according to the International Energy Agency's annual outlook released in April.
Also hanging over the market is the large combined inventory at fabricators and manufacturers.
Consultancy Metals Focus forecasts above-ground palladium stocks of about 11.64 million ounces in 2023, compared with 12.35 million in 2022 and 12.89 million in 2021 - meaning ample supplies.
In March 2022, palladium was trading at more than double the price of platinum, prompting a switch by automakers.
"In the near-term, given investor short positions in CME futures (looking at the CFTC data as a proxy) look very extended and demand is improving... I would think that a rebound is likely. However, longer-term Metals Focus is quite bearish on palladium," said Nikos Kavalis, managing director at Metals Focus.
(Reporting by Brijesh Patel, Harshit Verma and Ashitha Shivaprasad in Bengaluru, Additonal reporting by Anjana Anil, Anushree Mukherjee and Abhijith G; editing by Arpan Varghese, Pratima Desai and Hugh Lawson)