By Andrew Nelson
November in the uranium market was a tale of two entities. One was the US Department of Energy and its ongoing plans to release a large amount of stock into the market. The second was a new Canadian uranium investment fund, which plans to put the money it raises straight to work in buying uranium products.
Over the first three weeks of last month, industry consultant TradeTech's U308 Spot Price Indicator pulled all the way back to $43.00 per pound, down US$3.00 from the end of October reading. But by last Friday, the spot price was on the way up again, ending November at US$45.25, making for only a US$0.25 decline on the month.
There were two issues closely watched by the market that were ultimately instrumental in the price drop and the subsequent recovery. When the month began, the market was still struggling under a cloud of apprehension that has been around for months; namely the US Department of Energy's (DOE) plans to release an undisclosed, but presumably large, amount of material into the market.
With details about the DOE's plans fairly thin on the ground, for months the market was operating under the assumption that the excess supply would be enough to depress prices. By how much and for how long was unknown. But this expectation nonetheless had sellers jumpy and buyers cocky and apart from some upside provided by supply concerns after BHP's problems at Olympic Dam, the issue served to keep a lot of pressure on the uranium spot price. Buyers were increasingly ready to push for bargains, or wait it out, while worried sellers looked to lock in what prices they could achieve.
All that changed on the 12th of November, when DOE Secretary Steven Chu said the transfer of uranium to fund accelerated clean-up activities at the Portsmouth site in Piketon, Ohio, would have "no adverse material impact" on the domestic uranium mining, conversion, or enrichment industries.
On top of the soothing words, the DOE also released some much needed details of its plan. The DOE will transfer as much as 300 tonnes of uranium per quarter in calendar years 2009 and 2010 for the clean-up at the Portsmouth Gaseous Diffusion Plant. However, the total transfer during that period can't exceed 2.9 million pounds U3O8.
The news was a doubled edge sword however, as while it provided some much needed clarity as to the quantity and timing of the transfers, it was also a concrete confirmation that there will be significant additional supply in the marketplace in 2009 and 2010.
It wasn't until last week that the market got some much needed good news. A preliminary prospectus was filed in Canada for the formation of a uranium investment fund. Uranium Investment Corp is looking to raise as much as C$150 million to invest in uranium products. TradeTech reports that the company intends to use almost all of the money it raises to acquire uranium products.
The supply side saw a number of sellers hit the market ahead of the announcement from the DOE and this served to drive prices down during the first few weeks of the month. Buyers were quick to take advantage of the bargains on offer, with 14 transactions totalling 1.6 million pounds U3O8 equivalent concluded during the first three weeks of November.
However, there were another 8 transactions totalling over 1.1 million pounds U3O8 that were concluded in the last week of the month, despite it being a short week. These deals not only helped to clear the market of most of the discounted supply, buyers also seemed willing to pay more to secure material. TradeTech reports that by month-end, prices had increased US$1.25 from the November 27 Spot Price Indicator.
Fellow-consultant Ux Consulting reports that buying interest in the U3O8 spot market last week was widespread, with buyers including US and non-US utilities, traders, producers, and financial entities, which included both existing players as well as new entrants. This trend continued into this week, notes UxC, with buyers increasingly raising bids. This encouraged the now more discretionary sellers to raise their offers in turn.
All up, it is beginning to look like the aggressive sellers of the past few months are being replaced by increasingly aggressive buyers. Yet with the end of the year quickly nearing, it seems the sellers that had to sell have now pretty much shifted their goods. On the buy side, it's the new entrants in the market and the potential for more to follow that has extended increased interest.
Yet how much the spot price will rise is still a hard question to answer, as it depends both on the depth and aggressiveness of buyers and the price level that would make sellers happy enough to bring more supplies to the market.
The gap between the spot uranium price and the term price is also closing after longs months of an unmoved long-term price. Sellers in the term market have begun to lower prices in an effort to compete with various "buy and hold" options available to utility companies. This saw both mid- and long-term prices come under pressure during November.
TradeTech's Mid-Term U3O8 Price Indicator was down US$5.00 to US$50.00 per pound U3O8 over last month. The Long-Term Price Indicator for November 30 is US$60.00 per pound U3O8, which was also down US$5.00 from the October 31 level.
UxC's long term price indicator has now dropped to US$62/lb.
