After a decade of tailwinds, palladium will be buffeted by strengthening headwinds this year. On the surface, car production will increase as the microchip shortage continues to ease. However, the growth of internal combustion engine vehicles will be curtailed, as more countries introduce pro-electrification policies and as the product range and quality of battery electric vehicles (BEVs) improve, which will increasingly bias powertrain production and consumer purchasing towards BEVs. Consequently, the production of gasoline and diesel light-duty vehicles is expected to remain largely unchanged year-on-year, weighing on palladium’s growth. Demand suffers a further blow as substitution by platinum in gasoline vehicles increases. Moreover, the outlook for consumer electronic goods, such as smartphones, shows a more prolonged recovery than previously expected. The slower recovery combined with continued thrifting in palladium loadings will see a contraction in this segment.
In contrast, as the microchip shortage eases and automakers catch up on their order backlogs, we should see an increase in end-of-life vehicles and a consequent improvement in scrapyard stocks, lifting the supply of palladium from spent autocatalysts. Despite mine supply remaining vulnerable to severe disruption in South Africa (due to an ailing power utility infrastructure) and growing uncertainty in Russian primary supply, total supply should grow modestly. In the light of modest supply growth and static demand, the deficit will contract sharply, placing a cap on the price. With that outcome, plus growing awareness that 2024 onwards will see surplus conditions, we forecast that the metal could trade as low as $1,450, leading the annual average to decline by 14% to $1,810.