Palladium is set to transition into surplus from 2025, with the market forecasted to reach an oversupply of 897 koz by 2027. The primary driver behind this shift is a substantial increase in palladium recycling supply, expected to rise by 1.2 Moz between 2022 and 2027. The growing availability of recycled palladium stems from the scrapping of older vehicles with higher palladium loadings, a consequence of stricter emissions standards imposed over the past two decades.
The primary contributor to the surplus of palladium in the market is the increasing availability of scrap supply, especially from the recycling of autocatalysts. Between 2022 and 2027, global output of palladium from recycled autocatalysts is anticipated to rise by an impressive 52%, ultimately reaching 3.5 million ounces. This surge can be attributed to the higher PGM content found in older vehicles being scrapped today, coupled with advancements in recycling technology, which ensure a steady influx of palladium into the market.
In addition to the heightened scrap supply, the recovery of mine production in major producing regions such as Russia and South Africa is further strengthening the overall supply. As these areas return to their historical output levels, the total palladium supply experiences additional reinforcement. This projected increase in mine production is based on the mid-point of public company guidance, suggesting a promising outlook for the market.
With a growing supply of palladium, market prices are expected to decline unless new demand emerges. In commodity markets, prices typically fall in response to oversupply until uneconomic supply is curtailed or new demand is incentivized. If prices drop significantly, some producers may scale back operations to prevent excessive losses.
Historically, platinum and palladium have been interchangeable in many applications, particularly in autocatalysts used for vehicle emissions control. Although there are some physiochemical differences, advancements in emissions control technology have allowed for substitution between these two metals. Platinum is less prone to sulfur poisoning, while palladium enhances stability at higher temperatures.
As palladium prices remain under pressure due to oversupply, automotive manufacturers have already begun substituting platinum for palladium in catalytic converters. WPIC research estimates that 15% of vehicles produced in any given year are new models where substitution can be implemented. This gradual shift will lock in platinum usage for years, impacting long-term demand for palladium.
The polymetallic nature of palladium-bearing ores means that its production economics are influenced by multiple price inputs, including those of platinum, rhodium, gold, nickel, and copper. As a result, primary mine supply remains relatively price inelastic, meaning production does not respond quickly to changes in palladium prices. This factor contributes to prolonged periods of surplus or deficit in the market.
Furthermore, historical trends indicate that palladium and platinum have experienced bidirectional substitution based on price movements, supply security, and catalytic effectiveness. When one metal experiences oversupply, its price typically drops, encouraging industries to switch back to the other metal if economically viable.
The palladium market is set to undergo a period of sustained oversupply due to increased recycling and recovering mine production. This surplus is expected to push prices downward, influencing industrial applications and accelerating the substitution of platinum for palladium in automotive catalysts. While market forces will eventually balance supply and demand, the oversupply period is likely to persist in the medium term, reshaping the dynamics of the PGM (Platinum Group Metals) market for years to come.