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Uranium Market Sends Mixed Signals

Commodities | Sep 18 2012

By Andrew Nelson

Just about every week the uranium spot price is either flat of trickles a little lower despite the growing amount of optimism coming from market participants, assorted analysts and self-proclaimed experts. Last week was no different, except there was a bit of not so good news as well.

Ironically, one of the biggest pieces of news supporting a positive uranium outlook that we’ve seen over the last few months has been Japan’s decision to re-start idled reactors post the Fukushima incident.  Well, the Japanese have pulled the rug out, with a Cabinet panel last Friday calling for a phasing out of nuclear power altogether over the next three decades.

AP reports that before the Fukushima accident, the country needed nuclear power to generate more than 30% of its energy and the plans were to raise that to 50% by 2030. However, growing anti-nuclear sentiment and a number mass of protests post-Fukushima have the government now changing these plans.

The real question is: how serious is the Japanese government? At first read, it seems not very much. At least not yet. The phase-out of nuclear power by 2030 will mean more oil, more gas and more alternative energy. Moreover, the government as yet has no idea as to how it will pay for the costly expansion of renewable energy and also how to minimize the environmental impact of a return to fossil fuels.

The report from AP also notes the new policy will delay decisions on spent fuel processing and radioactive waste disposal. So, we’re also left wondering what Japan will do with its spent nuclear fuel to avoid accumulating stockpiles of plutonium. The new policy does allow Japan to continue its fuel recycling program, despite the nuclear phase-out, which certainly seems like a big contradiction.

In fact, the latter fact had the US Deputy Secretary of Energy Daniel Poneman asking questions about Japan's ability to reduce plutonium stockpiles, reports AP.

So more uranium for Japan? Maybe yes, maybe no, which is the same answer we’ve had for months now. And so it goes.

Now let’s take a look at some of the positive chatter that hit the wires last week. Retail research house Five Star Equities reported last week that the Global X Uranium ETF (URA) is up nearly 8% over the past month after falling over 50% last year on Japan's nuclear disaster.

Meanwhile, Seeking Alpha interviewed Independent Researcher Alka Singh of Mine2Capital last week and he believes uranium fundamentals are now at a tipping point. Singh points out that while uranium prices may be down, so are supplies.  And this looming supply gap must be filled at some point.

On his numbers, there are 433 operating nuclear power reactors around the world and they consume 177 million pounds of uranium. Last year, global production was 130mlb. The gap has traditionally been filled by the recycling of Russian weapons grade uranium under the HEU Agreement, but that’s about to expire. He also notes that most supply is being generated at near un-economic levels given low prices. Something’s gotta give.

In the mean time, the U308 spot market remains just one notch up from dead. Industry consultant TradeTech report there were just 4 spot transactions booked on the uranium market last week and they accounted for 400,000 pounds changing hands. Well down from the already anaemic 750,000 pounds that were transacted the week before.

The funny thing here is that TradeTech also thought the market, especially sellers, were growing more positive on the outlook, expecting the imminent arrival of new buyers seeking to secure material for uncommitted needs in 2013 and beyond. Then the Japanese did an about face and buyers stepped back to wait for the price to drop. And it did.

Thus sellers that were preparing to ride prices a little higher on the expectation of increasing demand found themselves dropping offer prices yet again just to get deals done. As a result, TradeTech’s Weekly U3O8 Spot Price Indicator slipped another US$0.60 to US$47.40 per pound last week.

There was a little bit of new demand in the term market, but not enough to shift prices. TradeTech’s mid-term and long-term U3O8 Price Indicators remained unchanged at US$51.75 per pound and US$60.00 per pound respectively.

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