Commodities | Jun 12 2012
– TradeTech's spot uranium price rose last week
– Industry questions where future supply will come from
– Japan anticipated to restart nuclear power plants
– More consolidation could lead to re-rating for uranium stocks
By Andrew Nelson
One could have hoped that last week’s small drop in uranium spot prices might have spurred a bit of extra buying, but it didn’t. Industry consultant TradeTech notes that last week’s spot market activity was yet again slow, although there was at least a slight rebound from the price slip in the last week of May.
Last month’s late decline did see a bit of extra interest in the market, but TradeTech points out that buyers have remained hesitant for the most part. Less than 800,000 pounds of U3O8 was traded in four transactions last week, three of which were concluded late in the week.
TradeTech’s Weekly U3O8 Spot Price Indicator was at $51.00 per pound by the end of last week, up $0.75 from the prior week’s level. The mid-term and long-term indicators stayed put at $51.00 and $54.50 per pound respectively.
The 39th annual World Nuclear Fuel Market conference was hosted in Canada last week and Cameco President and CEO Tim Gitzel confirmed what we all know: the nuclear industry has not returned to pre-Fukushima levels and won’t rebound for some time given safety concerns remain a pressing issue.
However, Gitzel noted that the demand for uranium has long outpaced production, with secondary supplies filling in the gaps. However, Gitzel sees this trend as coming to an end, while at the same time production has been impacted by low uranium prices.
“Keep your eye on supply, because it is not obvious to me where the future supply will come from”, he said.
Ultimately, Cameco believes the nuclear industry could see a wider than expected supply/demand gap “sooner than expected”, according to Gitzel.
BMO Capital Markets analyst Ed Sterck told website theenergyreport.com that he is fairly satisfied with where uranium prices are right now, noting they are actually around $10 higher than they were in mid-2010, only six months before Fukushima.
He notes that it is becoming increasingly likely that Japan will begin to restart reactors, with a definite decision not too far off. In the meantime, China looks more and more likely to will begin to issue new reactor licenses, possibly as early as this month, thinks Sterck.
While Sterck isn’t certain that this will be enough to start pushing prices higher, he is confident that it’s at least a step in the right direction, as it allows a de-risking of the outlook for the nuclear industry in analysts circles, thus allowing capital back into uranium stocks. This could potentially result in a rerating of stocks in the sector, says Sterck.
Canadian investment bank, Versant Partners, also chimed in on the topic last week, saying “Depressed prices and projected tightness in supply often lead to consolidation.”
The bank points out that the Russian/American Highly Enriched Uranium (“HEU”) down-blending agreement is still set to expire in 2013. This would remove 25m pounds of uranium from the market.
To give you an idea as to how much this is, Versant points out that the above figure represents 44% of the US’ annual uranium needs. On tip of this, Versant points out that since the beginning of the year, two construction permits have been issued by the US Nuclear Regulatory Commission. The first permits to be issued in over 30 years.
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