Commodities | Oct 14 2014
By Greg Peel
With the spot uranium price having now recovered to its highest level in over a year, and term contract prices having begun to edge up once more, the speculators have returned to the market. Last week’s market highlight was news a financial entity has acquired funds that would allow it to purchase up to US$200m of uranium inventory.
This news sent the spot price upward once more earlier in the week and, as has been the case in recent weeks, the rally tempted the sellers. The indicative spot price settled back from its mid-week high but still finished up US20c from the previous week’s close, at US$35.50/lb, UBS reports.
The other news highlight for the week was that of workers at Cameco’s McArthur River mine in Canada voting to accept a new collective agreement, suggesting production can resume.
Meanwhile, analysts at Citi have been looking at the vexing question of just when the first Japanese reactors might restart, following their 2011 closure in the wake of the Fukushima disaster. For so long has speculation been rife over possible pending restarts with no joy, the market had become weary of worrying about it. Instead the focus has been on supply curtailments due to lower uranium prices, and potential shorter term supply risks such as that of sanctions against Russia within the nuclear space, which are yet to materialise.
But for over two years now, the market has been looking forward to the first Japanese reactor restart, which would imply a return towards demand-supply balance in the global uranium industry. The then Japanese government established the Nuclear Regulation Authority in September 2012, tasked with the role of compliance management of the country’s reactors under new safety guidelines. The current government then won office in late 2012, bringing to power a party far more nuclear-supportive than the previous incumbent.
It seemed then only to be a matter of time, but it was not until July 2013 that new safety standards were fully established. Then just when it appeared two reactors might finally be given the green light this year, a new, stricter set of standards were hastily drawn up when local residents complained of insufficient reactor protection against natural disasters.
The bottom line at present is that no reactor has been restarted. Ten nuclear operators have filed for compliance inspections for 19 reactors and 146 inspection meetings have been held, Citi notes, to date resulting in only two reactors have had inspection reports compiled, being Sendai numbers one and two.
Citi suggests the compliance inspections have been protracted because the NRA is covering uncharted territory and because there have been differences of opinion between the NRA and operators over active faults (of the earthquake variety) and seismic vibrations. Indeed, the new, tougher set of regulations were hastily drawn up when one local mayor, at the behest of his constituents, knocked back restarts in his district over the question of whether the reactors were earthquake proof, among other possible terrors.
Citi thus summarises the issues influencing the timing of restarts into five factors: active faults; seismic vibration standards; type of reactor; age of reactor; and approval from local authorities. That said, Citi remains of the view Japan’s nuclear plants will gradually return to operation given the government’s pro-nuclear policy and recent hurry-up attempts regarding restarts, and the fact Sendai 1 and 2 are supposedly cleared to go.
Citi also believes compliance inspections will be sped up moving forward, as NRA inspectors deepen their experience and add to their roster of nuclear specialists. Sendai’s restarts would provide greater clarity on necessary processes.
The broker thus forecasts that restarts at Sendai in the March quarter 2015 will get the restart ball rolling, with five further reactors given the green light to lift nuclear capacity back to 17.3% of Japanese power supply by 2016.
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