UBS noted a shift in sentiment among option market players regarding palladium prices. Despite recent increases in net-long positions by non-commercial accounts, the outlook for palladium has turned negative. The changes in the market have resulted in a slight decrease in prices compared to the position on March 11.
The option market’s sentiment has shifted, with a current marginal skew towards the downside. This is reflected in the cost of call and put options, which indicate the market’s risk assessment. The risk reversal rate, which shows the volatility differential between call and put options, ranges from 0 to -5.2% for the upcoming one to six months.
UBS has forecasted a modest surplus in the palladium market, projecting an excess of 50,000 ounces, or 0.5% of demand, for this year. This surplus is expected to contribute to a downward trend in palladium prices, with a target of $900 per ounce by the end of 2024. The firm maintains a negative outlook on the metal’s future pricing.
The anticipated oversupply is attributed to a decline in demand for auto catalysts, which currently make up approximately 90% of palladium usage. UBS predicts a 2% contraction in total demand in 2024.
Given these factors, UBS advises that only investors with a high tolerance for risk should consider engaging with palladium, citing its low trading volumes and limited market size as additional reasons for caution.
InvestingPro Insights
As UBS signals a bearish outlook for palladium, recent data from InvestingPro underscores the precarious financial health of companies within this sector. A notable company in the industry is currently grappling with a challenging financial situation, as evidenced by its negative Price/Earnings (P/E) ratio of -5.95, which further deteriorated in the last twelve months as of Q3 2023 to -6.22. This indicates that investors are wary of the company’s profitability prospects.
Moreover, the company’s Return on Assets (RoA) for the same period stands at a staggering -346.49%, suggesting that the company is not generating positive earnings from its assets. In line with the broader market sentiment, the company’s 1 Year Price Total Return as of April 14, 2024, has declined by -16.67%, reflecting investors’ diminished confidence.
However, it’s not all negative. The company has seen a notable EBITDA Growth of 52.77% in the last twelve months as of Q3 2023, indicating some operational improvements despite the tough market conditions. This could be a silver lining for investors looking for signs of potential turnaround.
InvestingPro Tips suggest that investors should closely monitor the company’s next earnings date on April 24, 2024, to gauge any changes in the financial trajectory. Additionally, with the InvestingPro Fair Value estimated at 0.05 USD, significantly below the analyst target of 0.35 USD, there might be an opportunity for investors to reassess the company’s valuation.
For those interested in a deeper analysis, InvestingPro offers 5 additional tips, providing a comprehensive toolkit for making informed investment decisions. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and unlock the full potential of InvestingPro’s insights.
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