Commodities | Jun 07 2016
By Greg Peel
After a slow start to last week following the US public holiday, activity picked up in the spot uranium market such that by week’s end, industry consultant TradeTech’s weekly spot price indicator had risen US$1.00 to US$28.25/lb. Six transactions were concluded totalling 600,000lbs U3O8 equivalent.
The buying interest nevertheless came from traders and intermediaries rather than from end-users, possibly prompted by the sudden US$1.60 fall in the spot price the week before.
Uranium Week highlighted the issue of lack of utility demand two weeks ago (Interest Continues To Build), and specifically the problem facing the US. Macquarie has since drawn upon the problem in seeking explanation as to why utilities have not been stepping in to acquire material in the US$28-30/lb range as they had been doing prior to this year, thus contradicting analyst forecasts.
For starters, there is a certain level of self-explanation. Having seen this price range as sufficiently low to trigger stockpiling, US utilities increased their inventories last year and therefore are in no rush to keep on stockpiling this year. Macquarie points to the incidence of US utility Exelon steeping in at US$28/lb in 2014 and clearing out the entire spot market surplus single-handedly.
The news from last week however is that Exelon intends to shut down one nuclear power plant next year and another two-unit plant in 2018. There are five new reactors currently under construction in the US, but the industry has suggested there could be up to 15-20 older reactors set to be shut down over the next 5-10 years. In other words, the net number of US reactors is set to fall unless there’s a sudden burst of new construction.
The US is the world’s largest producer of nuclear power and subsequently the world’s largest consumer of uranium, accounting for 30% of global supply. Half of all US reactors operate in deregulated electricity markets, Macquarie notes, in which nuclear has to compete with gas-fired plants enjoying cheap prices for shale gas and with renewable energy enjoying government subsidies and grid access priority.
That the likes of Exelon should choose to shut down older reactors rather than revamp them or replace them is testament to market economics and the commercial viability of US nuclear power going forward.
Not that demand for nuclear power isn’t growing elsewhere in the world, particularly in emerging markets. China is leading the race in reactor builds, India has plans in place, South Africa is about to commission construction of up to eight reactors and now Nigeria has pledged US$80bn for nuclear reactor construction.
But with the pace of Japanese reactor restarts at best glacial and at worst, eternally impeded by popular dissent, a declining reactor count in the US and plans in Germany, for example, to phase out nuclear power threaten to undermine the demand side of a commodity threatened by over-supply. Despite significant supply curtailments across the globe in the face of weaker prices, the uranium spot price is still languishing due to tepid demand.
One transaction was concluded in the uranium mid-term markets last week, TradeTech reports, but only for 300,000lbs to be delivered over three years. TradeTech has now trimmed its term price indicators, by US25c to US$29.00/lb (mid) and by US1.00 to US$41.00/lb (long).
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