Commodities | Jul 08 2014
By Greg Peel
While the spot market might be the point of focus for global uranium trade, the reality is real end-users buy almost exclusively on longer term contracts with real producers, only entering the spot market for small parcels when necessary. Intermediaries act as go-betweens but spot markets also need active interest from speculators to provide liquidity.
There was little speculative interest in uranium prior to China’s emergence in the 2000’s, which coincided with a greater global acknowledgement of carbon emission issues. Speculators then decided uranium was a commodity with a future and in they piled. There followed a bubble and bust, but it was the Fukushima accident in 2011 which slowly killed off speculative interest once more.
Not only have the speculators left the building, but intermediaries have given the game away as well. While the exit of Goldman Sachs and Deutsche Bank from the market was prompted by changes to Fed regulations with regard investment bank commodity trading and warehousing, lack of market activity would have made the decision an easier one. Intermediaries remain, but the wind is certainly out of the market’s sails.
While it was understandable that nuclear utilities should postpone their purchases and inventory rebuilds until the fate of the Japanese nuclear industry, and extensive Japanese uranium inventory, was known, it was always assumed they would eventually have to restock. And new nuclear plants, such as those in China, would need initial material. However, it appears operations are well covered at present by existing supply contracts and inventory stockpiles that have yet to run down.
The result of lack of speculative interest, the loss of major intermediaries, no urgent utility demand and ongoing uncertainty surrounding Japanese reactor start-ups, has been a wallowing uranium market in the first half of 2014.
Industry consultant TradeTech’s spot price indicator was set at US$28.20/lb at the end of June, down US5c from May and down from US$34/lb at the beginning of 2014. The last three months have at least brought more stability to the spot price, but excess production is meeting a lack of buyer interest and price upside at this stage seems illusory. Current prices were last seen in 2005.
Activity in the spot market in June totalled just over 2mlbs of U3O8 equivalent in seventeen transactions, 500,000lbs lower than in May. Volume for the six months to June totalled 16.1mlbs compared to 19.9mlbs traded in the same period last year.
Activity has picked up slightly in the term market, albeit nothing to write home about at this stage. Despite low prices, utilities are by no means in a rush. Indeed, TradeTech has this month kept its mid-term price indicator steady at US$31/lb but lowered its long-term price to $44/lb from $45/lb.
There is a glimmer of hope on the horizon. Leading Australian investment bank Macquarie Group is set to enter the market for the first time as an intermediary this month, filling some of the vacuum left by Goldman Sachs and Deutsche Bank. This appears a contrarian play on Macquarie’s part, anticipating the day, whenever it may come, when uranium prices start to pick up again.
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.
