And, while the focus for many will be the networking that comes with a week’s worth of dinners and drinks, there will also be a lot of sombre faces, particularly from the South African producers who are enduring the longest strike in their history and have so far lost over £1bn in revenues.
To date, Anglo American Platinum, Impala Platinum and Lonmin have lost over 750,000 ounces of platinum and 550,000 ounces of palladium production and have all declared force majure on some of their contracts.
And, even if the strike were to end tomorrow (a highly unlikely scenario) production will take at least a few months to return to normal. And, there is a strong possibility that some of the older, deeper shafts will not return at all.
Yet, despite this, platinum prices have not moved much at all in recent weeks, hugging a fairly tight range around the $1,400 an ounce level, and one of the main topics of conversation at the whirlwind of dinners and drinks is likely to be what we can expect of prices going forward?
But, while the consensus currently seems to be that prices will rise in the future, there will be much debate about whether or not it will actually happen, how long such a rise will take and, most importantly, how best to position oneself.
The lay of the land
The first point is whether or not prices will actually rise. The main reason currently given for why prices have yet to shoot up on the back of the decimation of supply seen in the weeks since the strike started on January 23, 2014, is that supplies of actual metal are yet to be significantly affected. This is because there were significant above ground stocks of the metal sloshing about the system.
But, while the companies have so far been able to carry on supplying the market, there is no doubt that those stockpiles are beginning to look rather thin.
According to Simona Gambarini, associate director and research analyst at ETF Securities: “Consensus estimates indicate that the market overhang for platinum and palladium is around 5moz and 10moz respectively, equivalent to 59% of global platinum demand and 104% of global palladium demand in 2013.”
But she adds: “Although both markets have become a lot tighter over the past months, we believe the catalyst for a sharp rally would be for one of the top 3 producers (Amplats, Implats and Lonmin) to fail to meet all contractual obligations or to announce active metal buying on the open market to supply its contracts.”
A second fundamental factor to consider is the role the scrap market is playing. According to some commentators, the level of recycling of platinum from old cars exhausts being seen in the market means that demand for new metal is somewhat lower than people actually believe it to be. A factor that will also have ameliorated the supply crunch.
Speaking to Portfolio Adviser on Monday, Mitsubishi precious metals strategist, Jonathan Butler, also made the point that, while many of the operations have been affected, not all the mines have been shut down, which means some production continues.
How to play it?
For many, the expectation is that metal prices must eventually rise, especially if tensions in South Africa continue to worsen, as they did this last week, with clashes in parts of the Rustenburg area turning violent once more.
But, while platinum and palladium prices did jump 3% and 4% respectively last week, markets are likely waiting for a significant move one way or the other from the companies before making a definitive move.
This is evidenced in the ETC flows which, while rising steadily, have been capped somewhat by bouts of profit taking.
On the equity side, there seems to be little appetite to buy into the South African platinum producers while so much remains unknown. As one analyst told Portfolio Adviser, not only is there a lot of uncertainty from a sociopolitical point of view, but a lot of the stocks are already fairly highly priced.
According to the analyst, for those that are interested in the space, companies like Aquarius Platinum, which is probably the most highly leveraged to changes in metal prices, and Stillwater Mining, which is US-based (and so has none of the political problems facing the South African producers) might be worth considering.
What is for certain, however, the analyst said, is: “If metal prices do rise, the equities are likely to move up quick sharp, even from current elevated levels.”
All in all, there remain a great number of uncertainties and a much fodder for conversation around the dinner table.
