Commodities | Sep 23 2014
By Greg Peel
When industry consultant TradeTech’s weekly uranium spot price indicator hit a decade low of US$28.10/lb back in July, the supply side was desperate. Intermediaries holding inventories and producers burning cash lined up to hit any bid on a “have to sell” basis. Meanwhile, there was as yet no real indication of when, if ever, Japan’s reactors might restart and utilities carrying comfortable stockpiles of material were in no hurry to buy.
Producers across the globe began to shut down or mothball mines and any plans for new mines went straight to the bottom drawer.
Two months later, the view looks different in the short term. While Japan may finally restart the first of its reactors early next year, any timetable for full nuclear power restoration, if that is to occur at all, would be measured in years rather than months. The supply-side, on the other hand, has seen a confluence of potentially disruptive events which has thrown the market into uncertainty.
The legal challenge in the US rages on, hence it is yet to be determined whether the Department of Energy can continue to offload uranium stockpiles into the market or not. While negotiations have progressed in Canada at the world’s biggest producing mine and processing plant, between owner Cameco and striking workers, it is still unclear just how long production might remain offline. And while a tenuous ceasefire appears to be holding for now in Ukraine, market participants remain fearful any further step-up in sanctions against Russia could fundamentally impact on the uranium industry.
As these stories have built over the past two months, the spot uranium price has ticked quietly higher. No longer able to safely consider supply as more than sufficient to satisfy shorter term demand, utilities had begun to put out the feelers for supply contracts. On a net basis, intermediaries who were previously stuck with product they needed to get rid of have now swung back the other way in anticipation of more anxious demand, while producers, sensing the pendulum may finally be swinging back their way, have backed off their offer prices.
Weekly increases in price since that US$28.10 low had been incremental so far, but last week the dam broke. TradeTech reports seventeen transactions totalling 1.8mlbs of U3O8 were conducted during the week – a big jump with respect to recent paltry average weekly volumes. Seeing the buyers coming over the hill, the sellers retreated, such that every consecutive transaction traded at a higher price as the week progressed. By Friday, TradeTech’s spot price indicator had jumped no less than 10.6%, rising US$3.50 to US$36.50/lb.
The rush of trading was not restricted to the spot market, with the mid-term delivery market seeing several transactions completed as well. TradeTech has not yet seen fit to raise its term price indicators, but given a spot price of US$36.50/lb now exceeds the consultant’s mid-term indicator of US$34.50/lb an adjustment could be pending.
One must consider, however, that those factors impacting on the uncertainty of the supply side, and thus playing on the fears of the demand-side, could prove fleeting. The challenge against the US DoE may fail. Some sort of resolution may be reached between Ukraine and Russia, causing sanctions to be lifted. Cameco may resolve its issue with workers and restart its mine. Or any or all of the above.
And further legal challenges by local residents in those Japanese prefectures where reactors have been given safety approval could yet hold up any restarts indefinitely.
The bottom line is that while a 10% jump in the uranium price suggests things are finally on the move again, we cannot confidently call a cyclical end to post-Fukushima uranium price weakness.
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