Uranium Week: Another Broker Downgrades Price Forecasts

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

By Greg Peel

Only four transactions totalling 500,000lbs of U3O8 equivalent were conducted in the spot uranium market last week. Industry consultant TradeTech notes year to date volumes, at just 7.4mlbs, are down 32% on the same time last year. The ongoing lack of buyer urgency saw TradeTech’s spot price indicator fall another US15c to US$34.60/lb.

Following the closure of Paladin Energy’s ((PDN)) Kayelekera mine in Malawi, BA-Merrill Lynch now believes supply from similar new projects in Africa will be shut down for the balance of the decade. Such projects, including Imouraren in Niger, Trekkopje in Namibia and Mkuju River in Tanzania require a long term uranium price well above the broker’s estimate to cover the cost of production. This withdrawal of supply will not upset the balance in the shorter term given the extent of Japan’s stockpiles, Merrills suggests.

The broker sees a balanced uranium market until 2016. Thereafter, a lack of investment in new deposits could lead to a yearly deficit of nearly 20mlbs by 2020. Critical to global demand-supply is the restart of Japanese reactors, progress in which has been slower than the broker expected.

So far 17 of Japan’s 44 idled reactors have applied to the regulator for restart, representing around 8.2mlbs of uranium demand. Merrills expects the first restarts in the second half of 2014 and the Japanese government sees the potential for up to ten restarts by year-end. Brokers have long seen the first Japanese restarts as the impetus for the uranium market to overcome its malaise, but even with the first of these in sight a well supplied market has meant little price improvement.

As a result, Merrills has lowered its 2014 spot price forecast by 3.2% to US$45.00/lb and its term price forecast by 4.1% to US$58.75/lb. The broker’s 2015 spot price forecast falls to US$63.75/lb from US$66.25/lb while a long term forecast price of US$67.85/lb is maintained.

There were no transactions in the term market last week and TradeTech’s term price indicators remain unchanged at US$37.75/lb (mid) and US$50.00/lb (long).

Despite its downgrades, Merrills remains long term positive on uranium’s fundamentals, citing the end of the Russian HEU supply agreement, the renewed commitment to nuclear power from Japan and Chinese aggressive construction of new reactors as prime drivers. Adding to the equation is a long term nuclear energy plan now formally adopted by South Korea and Russia’s stated intention to build 28 new reactors by 2030.

In the shorter term, US power companies have been concerned current sanctions against Russia as a response to the Crimea annexation might be extended to the export of Russian nuclear fuel supplies. However, US enrichment facilities have assured the market there is more than enough supply to cover any shortfalls.

And that about sums up the state of the uranium market at present.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms