By Andrew Nelson
Despite a run of soft sentiment that’s only worsened since the March 2011 Fukushima nuclear power plant accident, it still seems fairly clear that policy makers across the globe remain committed to nuclear power for the most part. Despite a few naysayers like Germany and Japan recently “talking about” leaving the nuclear power marketplace, global demand is still expected to increase significantly over the medium to longer term via ongoing demand and new work in Asia, the US and yes, even Europe.
This combination of increasingly tight supply and steady demand growth for nuclear power sees analysts at Morgan Stanley upgrade their view on the uranium market.
The broker expects global nuclear power capacity will increase by 38% over the next eight years as countries chase lower levels of carbon emissions while trying to keep prices down on generation and distribution. This is very much the case in China, although the broker also expects Japan will return to around 60% of its pre-Fukushima level by 2020 despite the recent anti-nuclear rumblings coming from the government.
Based on this sort of demand, Morgan Stanley expects uranium supply will start falling short of its projected demand growth as soon as 2014, lagging demand by some 11.5mlbs in 2015 based on current production levels. The broker expects this gap will continue to widen, increasing to a shortfall of 17.8mlbs by 2020. That is, of course, unless new supply continues to come on line.
There is one major factor required to bring new supply on line and that is higher prices, which will be the only thing that generates new investment and development. On the broker’s numbers, the minimum price it will take to encourage new production through this 8-year period is US$69.50/lb.
The broker’s model is predicting deficit market conditions as early as 2014 and while it sees some possible supply relief in 2016-17 as a number of large projects come on-line, we’ll probably be back to supply deficits again from 2018 onwards, thinks Morgan Stanley. This view sees the broker upgrade its uranium spot price forecasts for 2013 and onwards. The broker’s 2013 price is at US$54.63/lb, 2014 has been lifted to US$60.00/lb, 2015 is US$63.00/lb, 2016 sits at US$64.00/lb, while longer term the broker sees the price at US$69.50/lb.
Meanwhile, the spot market continues to move backwards, although last week saw slightly higher volumes than we’ve seen in a few weeks now. Industry consultant TradeTech reported 850,000 pounds of U308 changed hands last week over the course of six transactions. Sellers were traders and producers for the most part, with buyers remaining a combination of utilities and traders.
TradeTech notes the spot uranium price struggled all of last week to find some solid footing, but never did. TradeTech’s Weekly U308 Spot Price Indicator ended the week at US $46.50 per pound, down US$0.90 from the previous week’s value. The consultant cited a number of factors for the weakness including the uncertainty about Japan’s nuclear energy policy, with the government there flip-flopping on the issue, which has done little to inspire any optimism among sellers. Over the past few weeks the Japanese government has put out a number of contradictory statements about its plans for an eventual “zero nuclear” energy policy.
The uncertainty has encouraged a number of sellers to drop prices in order to get deals done, as sitting on stock in hopes of higher prices must certainly be eating into cash flow. TradeTech notes a number of suppliers have been holding onto stock in hopes that China will be able to address a several months' long delay of uranium deliveries following the disruption of rail shipments between the Chinese and Kazakh border.
There was a little bit more life than normal in the term market last week, with TradeTech noting some new demand. A non-US utility has entered the term market looking for 250,000 pounds of U308 delivery over a three-year period. Other than that, it was pretty much the same old demand from weeks gone by. By last Friday, TradeTech’s Mid-Term and Long-Term Price Indicators were still unchanged at US$51.75/lb and US$60.00/lb respectively.
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