In H1 2014, platinum price was quite volatile fluctuating in the range of USD 1,370 to USD 1,490 per ounce. The price did not respond much to the supply issues caused by the labour strikes at Amplats, Impala and Lonmin in South Africa, resulting in the 55% of the country's platinum mine production (approximately 40% of the world's) halted.

Even though the South African PGM producers accumulated inventories of both ore and refined platinum inventories in anticipation of the strike, which helped to mitigate the reduced mine output, some producers still had to declare force majeure on their contractual obligations and reduce deliveries.

Taking into account the potential ramp up period and re starts of the idled mine production, we expect the platinum supply from South Africa to decrease by over 750,000 ounces YoY in 2014.

We expect platinum gross consumption to increase by more than 5% YoY in 2014. Platinum ETFs are enjoying another year of net inflows, with 300 thousand ounces added to ETFs in H1 2014 following the record high of over 900 thousand ounces accumulated by a new ABSA fund in South Africa in 2013.

In spite of the unprecedented labour strike and supply reduction in South Africa, platinum price in H1 2014 was down 7% year on year to an average USD 1,437 per ounce. In our view, this apparent abnormality illustrates yet again the fact that pricing in platinum market is to larger extent driven by the financial markets and investors rather than the fundamentals of the physical supply demand. Above the ground PGM stocks are mostly opaque, but may as well cap rebounds in platinum price.

We forecast that platinum production cost in South Africa will continue to rise, in part driven by rising input costs such as electricity and labour and in part driven by geological conditions. This should drive higher the global platinum cost curve, thus supporting higher platinum prices. Strong cost pressure may additionally trigger further industry restructuring, involving the closure of unprofitable mines and thus negatively affecting the mined supply.

We further estimate that the available global above-the-ground platinum inventories are lower than the widely believed. We remain bullish on the platinum market in the medium term, but expect that its premium over palladium should reduce.

• [Editor:Juan]