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Uranium Week: Downside Price Risk

Commodities | Apr 21 2015

By Greg Peel

Interest in the uranium spot market has slowed to a trickle these past couple of weeks, as buyers and sellers show little interest in meeting on price. Industry consultant TradeTech reports only three transactions totalling a modest 300,000lbs were concluded in the market last week.

TradeTech’s weekly spot price indicator has slipped US10c to US$38.90/lb.

If there was little trading activity last week there was plenty of news, the highlight being an announced five year, 7.1mlb deal for Canada, via global uranium giant Cameco, to supply uranium to India for the purpose of electricity generation. India is rapidly building a fleet of nuclear power plants.

Australian foreign minister, Julie Bishop, expects a similar deal to be in place between Australia and India by year’s end. Australia boasts 32% of the world’s uranium resources but exports only 11% at this stage. Exports to India remain controversial given the country is nuclear weapons capable but not a signatory to the global Non-Proliferation Treaty.

The news from Japan was not so encouraging. While Sendai units one and two remain very close to re-start, a Japanese court has ordered a halt to plans to restart Takahama units three and four given safety concerns. It’s the first time the courts have become involved in the restart process.

The pending restart of the first Japanese reactors is one reason why the uranium price has risen in 2015. Indeed, uranium is currently the best performing of all mined commodities, having risen 10% year to date and 18% year on year. Macquarie has taken the opportunity of the Canada-India supply deal news to review its uranium market outlook.

The deal leads Macquarie to forecast a smaller production surplus by year’s end than previously, but the broker notes the uranium market is still in significant oversupply. Already substantial inventories continue to build. While some supply cuts were forthcoming last year due to lower prices, Macquarie believes the spot price needs to retrace from here for any further supply cuts to be triggered.

The price also needs to be lower to encourage any strategic stocking from governments. All up, Macquarie sees near-term risk for the spot uranium price to the downside.

Meanwhile, the term uranium market continues to tick over quietly with one US utility selecting a preferred supplier last week of 2.3mlbs for 2018-11 delivery, and another still evaluating offers on a 2.0mlbs 2018-21 deal. Several utilities are currently evaluating potential purchases, TradeTech reports. The consultant’s term price indicators remain unchanged at US$43.50/lb (mid) and US$50.00/lb (long).

Research from TradeTech reveals that over the period 2004-14, purchases by utilities have remained fairly static at an average 8.8mlbs per year. Producer purchases, which are occasionally needed to satisfy term supply contract obligations, have fluctuated from 1mlbs to 10mlbs per year over the period, averaging 5mlbs per year.

The difference in volumes comes from the speculative side of the market. In 2004, uranium traders and financial investors purchased 2mlbs and in 2011 – the year of the Fukushima disaster — they purchased 30mlbs. Last year that figure was still strong at 28mlbs.

If the spot uranium price is to fall back, it will need nervousness amongst speculators to do so.

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