Commodities | Dec 09 2014
By Greg Peel
Last week this report noted, with regard the term uranium market, that “producers, who in response to ever lower post-Fukushima spot prices had been forced to curtail production and shelve expansion plans, have been shying away from longer term delivery contracts at fixed prices. "Having suffered long and hard, producers would like to get a bit back thank you very much”.
The uranium spot market is not where uranium producers and end-users meet to ensure nuclear utilities are sufficiently stocked to ensure power production into the future. Typically it is where producers offload smaller amounts, or even buy in smaller amounts to make up for contract obligation shortfalls. Utilities will also use the spot market for smaller amounts, or to take advantage of brief price opportunities, but when it comes to ensuring uranium supply security, they prefer to sign longer term contracts which lock in delivery over a period of years.
When the spot uranium price began to rise from its long term doldrums last decade, accelerating sharply as speculators piled in on expectation of a new green energy world coinciding with the emergence of China and India, longer standing producers found themselves stuck delivering uranium on fixed price contracts signed some time before. They were missing out on the spoils, while newcomers to the market elected to sell uranium at spot-based pricing and thus cleaned up. The spot bubble soon burst, but it was Fukushima that really knocked the wind out of uranium’s sails. Japan shut down its reactors and sat on its extensive uranium stockpiles.
Utilities, which typically carry such stockpiles to ensure supply security up to years ahead, had no immediate need to buy, while producers, who suddenly found their spot pricing models had turned against them, were desperate to sell. The spot uranium price collapsed gradually to its depths earlier this year. But with news of pending Japanese reactors restarts, well over three years after Fukushima, the spot uranium market is back in action.
Utilities are back looking to buy. While they have been happy recently to try and grab some cheap material at spot, if the price runs away they back off again. Those producers who have managed to weather the post-Fukushima storm are keen to sell to rebuild their balance sheets, but as soon as they see the utilities coming they back off in the hope of achieving a better price. After a very quiet year, the term market is also hotting up again. Typically, term contracts are signed at fixed prices.
Obviously if the uranium price is moving up, utilities prefer fixed prices. But producers, who have suffered three long hard years, don’t want to blow the opportunity of riding a potential spot price rally. Thus it has transpired the two parties have begun to meet in the middle. The compromise is, as industry consultant TradeTech notes, a new model of hybrid contract pricing, mixing fixed price and floating spot price components.
Four transactions were concluded in the uranium term market last week, TradeTech reports, totalling over 2mlbs U3O8 equivalent for delivery between 2016 and 2024. Several utilities are known to be keen to enter the market before year-end, and are now shying away from what has become a highly volatile spot market, in which speculators are again involved. Mid and longer term delivery contracts are being sought.
Thus after a tumultuous November, the uranium spot market fell relatively quiet in the first week of December. Buyers and sellers both backed off in either direction. Five transactions were concluded, TradeTech reports, totalling 700,000lbs of U3O8 equivalent.
TradeTech’s weekly spot price indicator is down US$1.15 from the week before, at US$37.85/lb. The action is in the term market, and last week Trade Tech lifted its term price indicators accordingly. They remain unchanged this week at US$42.00/lb (mid) and US$50.00/lb (long).
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