UBS has revised down its palladium price outlook to $1,400 per ounce from $1,600 across all tenors, citing expectations that the market will shift to a surplus in 2026 after 14 consecutive years of deficits.
Data published in a recent report by catalyst producer Johnson Matthey show the palladium market was undersupplied by 416,000 ounces in 2025, which the report describes as equivalent to roughly 4.1% of demand. The company also revised its estimate of the 2024 deficit downward from 501,000 ounces to 218,000 ounces.
Johnson Matthey highlighted strong investment demand of 382,000 ounces for 2025, with investors buying into real assets across much of the year. Those flows helped sustain another year of market shortages despite other supply and demand movements.
Total palladium demand was marginally higher in 2025 compared with 2024. Within that aggregate, autocatalyst demand declined by only 1.2% in 2025 versus 2024. Lower mine production also contributed to keeping the market in deficit, a pattern the report indicated could persist into 2026.
UBS, however, expects a change in dynamics next year. The bank argues that the strong investment demand seen in 2025 is unlikely to continue and forecasts that palladium will move into surplus in 2026. Supporting that view, palladium ETF holdings have fallen so far in 2026, and UBS anticipates investment demand will remain negative.
Johnson Matthey also identified factors likely to increase scrap supply in 2026. One factor cited was the renewal of a vehicle trade-in incentive scheme in China, which the company sees as contributing to higher volumes of recyclable material returning to the market.
On the demand side, UBS expects autocatalyst requirements to decline further, driven by fewer produced internal combustion engine vehicles. The bank trimmed its forecasts in light of ongoing concerns about economic growth and an expectation that fundamentals will deteriorate.
The combination of moderating investment interest, potential increases in scrap supply, and weaker autocatalyst demand underpins UBS's lower price target and its view that the market will slip into surplus in 2026 after more than a decade of shortfalls.