UBS has increased its palladium price forecast by $100 per ounce across all tenors this week, citing expected declines in Canadian mine production. Despite the upward revision, the bank maintains a bearish stance on the metal, pointing to sluggish demand from the automotive sector as a major concern.
Palladium has posted a strong performance in 2025 so far, with prices rising 37% year-to-date, making it the second-best-performing precious metal after platinum. UBS attributes the rally primarily to supply disruptions and a short-covering push in the futures market. The latest data shows non-commercial short positions dropping sharply from 1.9 million ounces in April to 1.1 million ounces, while long positions have edged up to just above 0.9 million ounces. While positioning remains net-short, the shift suggests easing bearish sentiment.
Still, UBS analysts say the market remains fragile and volatile, largely due to geopolitical tensions and supply-side risks. The bank flagged threats from former U.S. President Donald Trump to impose secondary sanctions on buyers of Russian goods, which could severely disrupt palladium exports from Russia, the world’s leading producer. Further worries come from South Africa, the second-largest supplier, which could also face tariffs under proposed trade policies.
Adding to supply concerns, Impala Canada has confirmed plans to halt operations at its Lac des Iles mine by May 2026. The facility contributes an estimated 200,000 to 250,000 ounces of palladium annually to the global supply, and its closure could tighten markets further over the next two years.
Despite this tightening outlook on the supply front, UBS continues to see palladium as a high-risk investment. The bank warns that the metal’s low liquidity and limited market size make it vulnerable to sharp price swings. Most critically, demand fundamentals remain weak. More than 80% of palladium consumption comes from catalytic converters in gasoline vehicles, and the U.S. auto sector is struggling due to economic pressures and rising tariffs, further dampening the demand outlook.
UBS concluded its note by cautioning that palladium is best suited for high-risk-tolerance investors, as its current rally may not hold in the face of continued structural headwinds.