Investing.com -- UBS released its forecast on palladium prices, noting that despite a 16% price drop in 2024, the metal’s market remained undersupplied for the thirteenth consecutive year.

According to a report by catalyst producer Johnson Matthey (LON: JMAT ), the palladium market experienced an undersupply of 501,000 ounces in 2024, which is approximately 5.0% of the global demand. Johnson Matthey attributes the price decline to the release of excess inventories by mine producers, which helped to keep the market more supplied than anticipated.

In 2024, the mine supply of palladium modestly increased by 0.9% year-on-year to 6.654 million ounces, with notable output rises in Russia and South Africa. Recycling supply also saw a significant boost, increasing by 2.6% year-on-year to 2.940 million ounces, largely due to contributions from the automotive sector.

However, overall demand for palladium dropped by 2.7% year-on-year to 10.095 million ounces. The auto sector, specifically demand for autocatalysts, was the primary source of this decline, falling 5.2% year-on-year to 8.313 million ounces. On a positive note, investment demand for palladium showed a marked increase, rising from 61,000 ounces in 2023 to 229,000 ounces in 2024.

Looking ahead to 2025, Johnson Matthey projects a much smaller deficit of 17,000 ounces, suggesting a market that is nearly balanced. UBS, however, maintains a more bullish outlook for palladium, anticipating an undersupply of around 300,000 ounces, or 3% of demand for the current year.

The firm cautions that the deficit could be less if trade tensions continue, particularly noting the impact of tariffs on U.S. vehicle imports. UBS also predicts a potential contraction in mine supply for the current year.

After recent price movements, UBS has decided to keep a neutral stance on palladium, expecting other precious metals to outperform. The forecast indicates that while palladium may still be undersupplied, market dynamics and broader economic factors are likely to influence its price trajectory in the near term.

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