Commodities | Nov 25 2014
By Greg Peel
Last Friday Macquarie published a lengthy review of the spot uranium market, citing five reasons why the analysts expected the strong rally on low volumes must peak out ahead of a sharp price consolidation. Macquarie was on the money if not unfortunate, given by the time the report was being published spot uranium was on track to a 13% price plunge over the week. Industry consultant TradeTech’s spot price indicator finished the week down 13%, or US$6.00, to US$38.00/lb.
Buyers decided not to chase the market any further last week, TradeTech attests, hurrying sellers into lowering their offers. Demand finally met supply at week’s end, resulting in seven transactions being completed for a total of 1.8mlbs of U3O8 equivalent. Utilities joined in with traders and speculators, and even producers were on the buy-side last week.
While the spot uranium market is notoriously volatile, the week’s 13% fall is the biggest since the Fukushima nuclear accident in 2011. The spot price is still up 21.6% over four months, nonetheless, and up 57% from the June low. There was one transaction reported in the term market last week, as a utility signed with a supplier for 2mlbs U3O8, but TradeTech’s term price indicators are unchanged at US$38.75/lb (mid) and US$45.00/lb (long).
Macquarie suggested on Friday spot uranium had run too far, too fast, and without any real improvement in fundamentals. Market rebalancing will continue to be a longer term process, the analysts believe. In recent weeks a relative lack of spot availability, largely due to operational issues at various mines, has met a surge in trader interest, largely due to the Japanese reactor restart announcement. There also remain lingering concerns over sanctions against Russia potentially being increased to include enriched uranium.
Macquarie outlined five reasons why it was expecting a price correction: (1) the spot price rally has not been matched in a coincident rally in the price of enriched uranium; (2) global production has declined year to date; (3) utility buying has been driven more by the desire to pick up cheap material than by actual necessity; (4) Japanese reactor restarts are good for market sentiment but there will be little need for Japanese utilities to add to existing stockpiles of material in the near term; and (5) Chinese imports of uranium have slowed 2% year to date due to substantial stockpiling at lower prices.
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