By 1303 GMT palladium was down 2.8% at $869.6 per troy ounce, its lowest in five years, while platinum stood at $874.5.
Palladium fell by 39% in 2023 as its strong price growth in 2018-2022 caused the auto sector, accounting for 80% of demand for the metal, to start replacing it with cheaper platinum in the autocatalysts curbing harmful emissions.
The rising market share of battery-powered electric vehicles, which do not require any offgas treatment system, worsened the metal's prospects further.
"That means that demand will shrink while supply will remain more or less stable," said Henrik Marx, head of precious metals trading at Heraeus.
Platinum depends less on the auto sector thanks to its use in jewellery and other industries. [GOL/]
"Palladium prices could easily spike on major supply headlines given the thin liquidity. But we consider such rallies as opportunities for producers to add more hedging positions and for speculators to open fresh short positions, as the long-term outlook remains very negative," Citi said in a recent research.
Bets on stable future supply rely on the fact that the majority of mined palladium production comes in a basket with other metals, limiting producers' ability to slow palladium output even when the market price is below their costs.
South Africa and Russia account for 80% of global palladium mined output, with the rest mined in North America. Russia's main miner, Nornickel, will produce slightly less palladium this year, but no further reductions are planned, it said in January.
No major production cuts were announced during the African Mining Indaba conference in Cape Town this week, where a number of producers were present, though South African miners said they would cut costs.
"South Africa and America are not going to shut down production. That's the main conclusion," a source at a major miner told Reuters, referring both to palladium's Thursday price fall and the mood towards the end of the four-day conference.
(Reporting by Brijesh Patel in Bengaluru and Polina Devitt in London; Editing by Jason Neely, David Goodman and Jan Harvey)
By Brijesh Patel and Polina Devitt
