Palladium fundamentals are expected to weaken slightly in 2025, weighed down by oversupply and lower demand from the automotive sector.

Since reaching an all-time high of $3,002 per ounce in February 2022, palladium has experienced a continuous downward trend.

More than 80 percent of the demand for the platinum group element (PGE) comes from the automotive sector.

There it is used in the production of catalytic converters, but high prices caused parts manufacturers to reduce the amount of palladium in their products in favor of its cousin, PGE platinum, which is marketed at lower prices.

Although the price of palladium has fallen and even stabilized at 2024, it still trades at a premium to platinum: $953.50 per ounce versus $932.70 on January 15, 2025.

For most of 2024, the metal traded in the $900 to $1,100 range, but experienced a short-term spike to $1,200 in October when the U.S. Treasury called for tighter sanctions on Russian precious metals. Russia is one of the world's leading suppliers of palladium and other precious metals.

Given its dependence on the automotive sector, what does it mean for palladium that more automotive companies are transitioning from internal combustion vehicles (ICE) to electric vehicles (EV) and hybrids?

What factors will affect palladium in 2025?

In CPM Group's Gold and Silver Outlook 2025 report , Jeffrey Christian, the firm's CEO, said he expects both platinum and palladium to remain range-bound in 2025, albeit with a downward bias.

That bias is expected to be more pronounced for palladium due to weakening demand from the automotive sector.

As palladium catalyzes toxic engine emissions and converts them into less toxic exhaust gases, the automotive sector is key to supporting the price of palladium. While total car sales are expected to increase by 1.7 percent to 89.6 million cars by 2025, an increasing proportion will be electric vehicles, which do not require any palladium charge.

However, while demand for electric vehicles continues to grow, the rate at which these vehicles are gaining a larger share of the market is slowing. According to S&P data, electric vehicles are expected to reach a market share of 16.7 percent of light vehicle sales, up from 13.2 percent in 2024 and 7 percent in 2023.

The slowdown in demand is due in part to market saturation and also to consumer fears around the availability of charging infrastructure and the overall range of electric vehicles. In addition, the broader needs of the electric grid may be hampered by a lack of necessary resources, such as copper, to provide the upgrades needed to manage the influx of new vehicles.

Another issue that may influence the automotive industry in 2025 is the effect of the incoming Trump administration's policy proposals .

In December, Donald Trump proposed imposing 25% tariffs on the United States' main trading partners, Canada and Mexico. These tariffs would have a massive impact on the North American automotive sector, as vehicles and their parts would face a 25% cost increase each time they enter the United States. Without exceptions, the measure could decimate demand for new light vehicles in all three countries.

However, during the election, the president also proposed eliminating subsidies for sales of new electric vehicles, which effectively increased the price of new vehicles by as much as $7,500.

It remains to be seen how and when these promises will be implemented. It is also unknown how much influence Tesla (NASDAQ:TSLA) CEO Elon Musk will have, especially over electric vehicle policy, but he has already endorsed the elimination of subsidies.

Palladium supply and demand in 2025

The automotive sector accounts for 80 percent of palladium demand, making it by far the most important driver.

According to a report by CPM Group, demand for automobiles is expected to recover to pre-pandemic levels by 2025, increasing to 8.5 million ounces. However, this will be offset by demand from the jewelry and industrial sectors, which will decline to around 2 million ounces.

On the supply side, palladium is forecast to enter a surplus in 2025 and reach just under 1 million ounces in the next two years. The increase in supply is due to an additional 1.2 million ounces of recycled palladium entering the market due to the scrapping of end-of-life vehicles. This would create a total annual recycled quantity of 3.5 million ounces by 2025.

In addition to scrap material, both Russian and South African mines are expected to return to historic production levels, further supporting an oversupplied palladium market.

What is the palladium price outlook for 2025?

Christian's prediction of a sideways palladium price suggests a range between $900 and $1,000.

This view is supported by a recent report from Heraeus Precious Metals, which suggests that the metal is likely to trade between $800 and $1,200, also depending on increased supply and weak demand.

Overall, the consensus seems to be that the palladium market will be weaker in 2025.

By Dean Belder, Investing News Network