Since reaching an all-time high of US$3,002 per ounce in February 2022, palladium has been on a continuous downward trend. This precious metal, part of the platinum group elements (PGE), is primarily used in the automotive sector, where over 80 percent of its demand originates. Specifically, palladium plays a crucial role in the production of catalytic converters, which are essential for reducing harmful emissions from internal combustion engines (ICE). However, the soaring prices of palladium prompted parts manufacturers to reduce the amount used in favor of its cousin, platinum, which has been trading at lower price points.
As of January 15, 2025, palladium is trading at US$953.50 per ounce, still a premium over platinum, which is priced at US$932.70. Throughout 2024, palladium largely fluctuated between US$900 and US$1,100, with a notable spike to US$1,200 in October, following the US Treasury’s call for stricter sanctions on Russian precious metals. Given that Russia is one of the world’s top suppliers of palladium, these geopolitical factors significantly impact market dynamics.
The Shift to Electric Vehicles: A Game Changer for Palladium Demand
The automotive industry’s transition from ICE vehicles to electric (EV) and hybrid drivetrains poses a significant challenge for palladium. As more automakers pivot towards EVs, which do not require palladium in their production, the demand for this precious metal is expected to decline. According to CPM Group’s 2025 Gold and Silver Outlook, managing director Jeffrey Christian anticipates that both platinum and palladium will remain rangebound in 2025, with a more pronounced downward bias for palladium due to weakening demand from the auto sector.
While overall car sales are projected to rise by 1.7 percent to 89.6 million vehicles in 2025, the increasing share of EVs—expected to reach 16.7 percent of light vehicle sales—will further diminish palladium’s relevance. This shift is partly due to market saturation and consumer concerns regarding charging infrastructure and the range of electric vehicles. Additionally, the broader electrical grid may struggle to accommodate the influx of new EVs, particularly due to resource shortages like copper needed for necessary upgrades.
Political and Economic Factors Influencing the Auto Industry
The political landscape also plays a crucial role in shaping the auto industry’s future. The incoming Trump administration has proposed sweeping 25 percent tariffs on the US’s largest trading partners, Canada and Mexico. Such tariffs could significantly impact the North American auto sector, leading to increased costs for vehicles and parts, which may dampen new light vehicle demand across the region.
Moreover, Trump’s proposal to eliminate subsidies for new EV sales could push vehicle prices up by as much as US$7,500, further complicating the market dynamics. The timing and implementation of these proposals remain uncertain, and the influence of key industry figures like Tesla CEO Elon Musk could also shape the future of EV policy.
Supply and Demand Dynamics for Palladium in 2025
The auto sector remains the primary driver of palladium demand, accounting for 80 percent of its usage. According to a report from CPM Group, auto demand is expected to recover to pre-pandemic levels in 2025, rising to approximately 8.5 million ounces. However, this increase will be offset by a decline in demand from the jewelry and industrial sectors, which is projected to fall to around 2 million ounces.
On the supply side, palladium is forecasted to enter a surplus in 2025, with an expected increase of just under 1 million ounces over the next two years. This surplus is largely attributed to an additional 1.2 million ounces of recycled palladium entering the market due to the scrapping of end-of-life vehicles. Overall, the total yearly recycled amount is anticipated to reach 3.5 million ounces by 2025. Furthermore, both Russian and South African mines are expected to return to historic output levels, contributing to an oversupplied palladium market.
Price Outlook for Palladium in 2025
Christian’s prediction of a sideways palladium price suggests a trading range of US$900 to US$1,000. This outlook is supported by a recent report from Heraeus Precious Metals, which indicates that palladium is likely to trade between US$800 and US$1,200, driven by increasing supply and weak demand. The consensus among analysts suggests that the palladium market will face challenges in 2025, leading to a weaker overall performance.
In conclusion, the future of palladium is intricately linked to the automotive industry’s transition towards electric vehicles, geopolitical factors, and supply-demand dynamics. As the market navigates these challenges, stakeholders will need to remain vigilant and adaptable to the evolving landscape. For real-time updates on palladium and other precious metals, follow us on Twitter @INN_Resource.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
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