Commodities | Mar 31 2015
By Greg Peel
The UAE is progressing on its nuclear energy plans, on track to start up its first reactors in 2017. Jordan is set to sign a deal with Russia to build that country’s first nuclear power plant. South Africa is negotiating with builders for its second nuclear plant, while Russia has signed a deal to provide enriched uranium for India’s Tarapur plant.
It’s all happening on the demand side of the uranium market. The most dominant influences on the demand side this year have nevertheless been the pending restart of Japanese reactors, and the ongoing reactor build program in China. It is these two influences that JP Morgan suggests are behind the 40% rally in the spot uranium price from mid-2014, from US$28/lb to US$39/lb today.
JP Morgan believes these factors will continue to tighten the global uranium market in the short term. The first Japanese restarts are expected around June and China’s reactor count is expected to rise from 19 in 2014 to 27 in 2015 and 35 in 2016 before exceeding 50 by the end of the decade. That’s the good news.
The bad news, beyond the fact countries such as Germany are looking to shut down their nuclear reactors altogether, is that both Japan and China have been big buyers of uranium at low price levels. Japan already has stockpiles of material sitting unused since the 2011 tsunami but has continued to buy more recently, possibly assuming low prices will evaporate once the first reactors come back on line. China makes the point of stockpiling any commodity when prices are low, then drawing down inventories when prices are high.
The point here is that JP Morgan believes tightness in the uranium market will prove short-lived. Once prices climb higher, Japan and China will stop buying for the time being. If prices trade too high, such as to US$80/lb, new global supply will be incentivised. The broker has set its average uranium price forecasts at US$42/lb in 2015 and US$50/lb in 2016 but back to US$45 in 2017. The broker’s long term price forecast remains at US$75/lb, but the start date for this assumption has been pushed out to 2020.
There were eight transactions recorded on the spot uranium market last week, industry consultant TradeTech reports, totalling 2.5mlbs of U3O8 equivalent. That’s up from 800,000lbs the week before. TradeTech has set its weekly spot price indicator at US$39.40/lb, down US10c from last week. However, this is very much an “indicative” price given several transaction parameters at play.
Prices varied widely last week, TradeTech reports, dependent on delivery schedule, origin of material, form of material, and delivery location. Utilities, producers and speculators were all seen on the buy-side while producers and intermediaries made up the sell-side. The buyer of 2mlbs of material in the term market will choose a seller this week, while another utility has entered the market seeking offers and expectations remain that more utilities will move in coming months.
TradeTech’s term price indicators remain unchanged at US$42.50/lb (mid) and US$50.00/lb (long).
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