We believe that PGM prices will increase and remain at levels well above historical trends. On our calculations, two factors are driving prices higher: (1) continuing cost inflation means that a platinum price of c.US$2,100/oz will be required by the 85th percentile producer by 2014; and (2) our supply-demand analysis suggests that the market will enter another period of sustained deficit from 2010. We believe that the industry will likely react by bringing back high-cost supply to close the gap, but we see the need for investment in new build capacity. To incentivise new capacity expansion projects in South Africa and Zimbabwe, our analysis suggests that the platinum price needs to rise to US$2,650/oz by 2014/15 to enable acceptable returns. We see the price spiking in the interim to above US$2,800 on short-term supply problems. With no realistic alternative scale production outside South Africa or Zimbabwe and with demand growing, we expect prices to move to support the economics of the industry.

Eoin Treacy's view Platinum and palladium have both occupied positions of leadership during the bull market of the last decade and have offered helpful timing tools to those watching the development of their medium-term uptrends. Since mid-2009, palladium has been a clear upside leader in terms of the timing of its advance, the uptrend's consistency and its percentage gain. By early May, palladium was clearly accelerating. It encountered resistance in the region of the 2008 high and pulled back to the mean. This pullback also marked the beginning of a more difficult period for gold, silver and platinum.

Palladium found support in the region of $400 in May and has firmed above that level since. It is currently rallying towards the upper side of the range and a downward dynamic would be required to check current scope for some additional upside. Technical damage has been done to the medium-term uptrend and the outlook is now more uncertain than it was when prices were trending consistently. Nevertheless, we can probably give the upside the benefit of the doubt provided it holds above the 200-day MA; currently near $435.

Platinum had a less consistent advance but has also had a somewhat larger pullback and firmed in the region of the 200-day MA, mostly above $1500. A sustained move below that level would clearly indicate supply has regained the upper hand.