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Uranium Week: Spot Price Falls Below Production Cost Barrier

Commodities | May 06 2014

By Greg Peel

A spot uranium price of US$30/lb is considered to be both a psychological and production cost barrier, industry consultant TradeTech reports, too low to make new production commercially viable. During the month of April, eighteen transactions were completed in the spot market totalling 1.8mlbs, with traders and intermediaries becoming increasingly desperate to offload excess positions and producers to offload excess inventory. Sellers had to go looking for buyers.

TradeTech’s spot price indicator fell to US$30.10/lb by April 30 down from US$34.00/lb on March 31, but the two extra trading days to the end of the week saw TradeTech’s weekly price indicator fall to US$29.00/lb, down US$1.75 from a week earlier.

Concern had already long been mounting, the consultant notes, that prices have fallen precipitously low and are insufficient to support new primary production. This most recent drop is sure to evoke more angst and will further expose the gap between longer standing producers, who tend to hedge their production, and developing producers who have not hedged.

Three transactions were conducted in the term market over April and there remains interest on the demand side, but not with any great “have-to” urgency. TradeTech has lowered its term price indicators, to US$33/lb (mid) from US$37/lb previously and to US$45/lb (long) from US$50/lb previously.

The spot uranium price is now at a nine-year low. Yet in 2013, US producers, for one, increased their production by 6% over 2012 and achieved an average contract price of US$44.65/lb, down from US$49.63/lb in 2012. Exploration expenditure fell 25% year on year.

Despite falling prices, uranium market participants remain stoically optimistic about the industry’s long term fundamentals. On the demand side, the eventual restart of Japan’s reactors and increasing reactor construction in China provide hope while on the supply side, low prices are shuttering mines, curtailing plans for new mines or expansion, cutting exploration capex and must, one presumes, soon shut down some marginal producers altogether, as has now proven the case among US met coal producers (See: As US Producers Pull The Plug Will Coal Prices Go Up?).

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