Palladium prices continued their gradual decline on July 23, with COMEX Micro Palladium futures at $1,247-1,262/oz and the LBMA spot price around $1,325/oz. The metal has been trending lower since its March 2022 spike above $3,000/oz during the Russia-Ukraine crisis, as the structural narrative has shifted from chronic deficit to surplus. TradingEconomics shows palladium at $1,298.50/oz as of July 22, up 0.93% on the day, but the broader trend remains bearish.
The shift in market balance is dramatic. Johnson Matthey's 2026 PGM Market Report confirms that palladium was in persistent deficit from 2012 to 2025, a 14-year run that drove prices from below $500/oz to above $3,000/oz at the peak. But the report projects palladium could move into a small surplus of approximately 214,000 oz in 2026. DiscoveryAlert, summarizing JM data, estimates the shift from a 416,000 oz deficit in 2025 to a projected surplus of ~214,000 oz in 2026, the sharpest directional shift among all PGMs.
The surplus is driven by three structural forces. First, gasoline vehicle output is declining as EV penetration increases and automakers optimize catalyst loadings. Johnson Matthey forecasts 2026 palladium demand to fall by 9%, with automotive demand contracting in line with lower gasoline car production. Second, ETF investment has turned negative, with investors reducing exposure as the surplus narrative took hold. Third, platinum substitution continues to erode palladium's dominant position in gasoline catalytic converters.
Despite the bearish fundamental outlook, two factors limit the downside. Russian supply remains a geopolitical wild card: Russia accounts for approximately 40% of global palladium production, primarily through Norilsk Nickel. Any escalation of sanctions or supply disruption could quickly reverse the surplus. Norilsk reported a 6% palladium output decline in the first nine months of 2025, compounding supply tightness. South African production remains under pressure from Eskom's power crisis and operational disruptions.
South African operations have been slow to recover after flooding in 2025, and the Stillwater West mine in the United States was placed on care and maintenance, removing additional supply from the market. Even with stronger recycling expected in 2026, secondary supply is not enough to offset falling primary production. The Johnson Matthey report notes that primary supply from South Africa and North America has been eroded by rationalization and mine closures.
Metals Focus, in its PGM Focus 2026 report, forecasts palladium to average $1,570/oz in 2027, a 37% increase from current levels, driven by the potential for supply shocks and the fact that even a small surplus represents a fragile balance. Heraeus Precious Forecast 2026 projects a wider surplus but acknowledges that the metal is at risk of supply disruption.
The key question for buyers is whether the surplus is structural or cyclical. If EV adoption continues at current rates and platinum substitution accelerates, the surplus could persist and grow, putting downward pressure on prices toward $1,000/oz or below. But if geopolitical supply disruptions materialize, the market could swing back to deficit within weeks.
Palladium buyers face a market in structural transition. The 14-year deficit era is over, and the metal is moving into surplus for the first time since 2012. For procurement teams, this means the pricing power has shifted from sellers to buyers. Term contract negotiations should reflect the new surplus reality, with multi-year agreements priced below $1,200/oz. However, caution is warranted: Russian supply risk (40% of global output) means any sanctions escalation could reverse the surplus within weeks. A prudent strategy is to negotiate aggressive term pricing with the ability to increase volumes on short notice if supply disruption materializes. The platinum substitution trend is accelerating, and procurement teams should evaluate whether switching to platinum for new catalyst designs could achieve both cost savings and supply diversification.