Uranium Week: Demand Rising But Supply More Than Equal To The Task

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By Greg Peel

The departure of once significant uranium spot market intermediaries Goldman Sachs and Deutsche Bank from the uranium market, encouraged by a US Federal Reserve crackdown on physical commodity and warehousing, is having an impact, industry consultant TradeTech admits. The impact is not surprising although it did appear briefly as if other non-investment bank intermediaries were rising to fill the gap, but activity has continued to dwindle.

A total of 19 transactions were completed in the spot market in the month of March, totalling 3.2mlbs of U3O8 equivalent, bringing to 9mlbs the total for the March quarter. In the March quarter 2011, 18mlbs changed hands. The Japanese tsunami hit in March 2011 and by the March quarter 2012, volumes had plummeted to 7mlbs. This improved to 10.5mlbs in 2012 which is why it is so disappointing to see volumes falling back again this March quarter. In 2013 there was much anticipation of a Japanese reactor restart under the new Abe government which would conspire with the end of the Russian HEU agreement to reignite uranium prices. A year later and the market is hoping for the first restart soon…ish. Meanwhile, supply-side restraints, including abandoned production in the low price environment, have failed to have any upside impact on prices.

TradeTech’s monthly spot price indicator fell to US$34.00/lb at end-March, down from US$35.25 at end-February.

While there has been an increase in utility bidding interest for delivery contracts in the term market of late, “traders and producers are competing aggressively for each potential new term sales contract, “TradeTech reports, “whether in the mid- or long-term arenas”. The consultant has lowered its term price indicators to US$37.00/lb at end-March from US$37.75/lb end-February for mid-term contracts and US$45.00/lb from US$50.00/lb for long-term contracts.

Ux Consulting has lowered its (one) term price to US$47.00/lb, down from US$50.00/lb, representing the lowest level in eight years.

The scene has not improved in the first week of April. Five transactions totalling 500,000lbs of U3O8 equivalent were conducted in the spot market last week and TradeTech has lowered its weekly price indicator by US25c to US$33.75/lb, while Ux has lowered its equivalent US70c to US$34.00/lb.

Things in Japan continue to move slowly. Weeks of debate between the Japanese ruling party, the Liberal Democratic Party, and junior coalition partner New Komeito over the government’s new draft energy policy have now concluded. The parties will now break to hold meetings with their own members to discuss the proposal before it is sent to Cabinet for approval. The draft describes nuclear energy as “an important base-load energy source”.

Meanwhile, the rest of the world’s financial markets may have moved on from fears over the implications of Russia’s annexation of Crimea but concerns are still lingering in the uranium market. Ux Consulting argues that the drop in term prices at least suggests sales to utilities are on the rise, and this rise in demand, if not price, is put down to concerns over a potential global supply disruption.

Russia has already increased its natural gas sales price to Ukraine by 50%, notes TradeTech. Ukraine may not feature atop the list of major world economies but it does happen to maintain the world’s fourteenth largest electricity generation capacity. Of that capacity, 45% is nuclear, but is dependent upon Russia to provide the fuel. On the strength of Russia’s natural gas price hike, one presumes the Ukraine would be holding its breath with regard to uranium except for one catch. Crimea sources all of its electricity from Ukraine.

Outside of the FSU, wider implications are afoot. Russia happens to be one of the world’s leading constructors of nuclear reactors for foreign customers, as well as project financiers and suppliers of fuel. A large share of the world’s enrichment market is held by Russia. While only 18 of the 131 operating reactors in the European Union are directly supplied by Russia, Russian enrichment capacity represents 41% of the total EU enrichment market, TradeTech notes. And 42% of the US market.

Thus were US/EU sanctions imposed on Russia in the wake of Crimea to be extended beyond the current visa ban/asset freeze triviality, the potential for global nuclear fuel supply disruption on a tit for tat basis is heightened.

Interestingly, while Russia may dominate global uranium enrichment it accounted for only 4.9% of actual uranium production in 2013. At 36.5%, Kazakhstan dominated global supply last year, followed by Canada (15.4%) and Australia (12.0%), notes financial advisor Raymond James.
 

Kazakhstan has indicated it will keep output steady this year, despite the capacity to increase, if prices stay low. State-owned Kazatomprom has nevertheless warned it expects a big increase in reserves, in which case the supplier will potentially keep a controlling lid on any price increases which eventually occur as it works this inventory out.

Kazatomprom was the world’s second largest individual producer of uranium in 2013 at 16.0%, notes Raymond James, behind France's Areva (16.7%). Of total global uranium production, only nine companies currently account for around 90%. After Kazatomprom comes Canada’s Cameco at 14.5% and Russia/Canada’s ARMZ/U1 at 13.0% before a run of three (or should that be four) Australians. Production from Rio Tinto ((RIO)) and two-thirds Rio owned Energy Resources of Australia ((ERA)) is combined to represent 9.3%, while BHP Billiton ((BHP)) comes in at 5.9% and Paladin Energy ((PDN)) 5.2%, although Paladin has since placed its Kayekeleera  operation in Malawi into care and maintenance.

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