Commodities | Jul 12 2016
By Greg Peel
UBS’ global resource sector analysts have undertaken a quarterly update of commodity price forecasts and as a result, revised down their average spot uranium price forecasts for the years ahead. Significant downward revisions are driven by the slow pace of Japanese reactor restarts on the demand side meeting strong production from Canada’s Cameco on the supply side.
The broker’s 2016 forecast falls to (all prices in US$/lb) 30 from 37. For 2017, UBS has cut to 32 from 55, for 2018, to 42 from 60 and in 2019, to 55 from 60.
The pace of Japanese reactor restarts has been much slower than UBS, or anyone else, expected two years ago. There are 42 operable reactors in the country potentially able to restart, but so far only two have actually restarted and a third hopes to restart next month. There are 24 in the process of approval, but most remain bogged down in this process or held up by court actions and public protest.
There are 444 reactors currently operating globally, UBS notes. Of those, 33 are Chinese. There are 21 reactors currently under construction in China, 42 in the planning stage and a further 170 proposed. While the uranium market has been waiting a long time for Japanese restarts, clearly China is the key driver of increased demand.
While low uranium prices have forced the shutdown of marginal production at various mines across the globe, supply growth continues in Canada and Africa. In Canada, increased production at Cameco’s premier Cigar Lake mine has accounted for virtually all global production growth in the year to date.
UBS believes the longer term picture for uranium remains positive, driven by demand growth from China and eventual demand growth from Japan. However the nearer term picture is not as healthy, given the slow pace of Japanese restarts and supply growth increasing ahead of demand growth. The broker expects the spot price to languish in the low 30s over 2016-17, which is roughly the marginal cost of production.
The uranium market saw a quiet start to July, industry consultant TradeTech reports. Only four transactions totalling 750,000lbs U3O8 equivalent were concluded in the spot market last week and TradeTech’s weekly spot price indicator is unchanged at US$26.40/lb.
Year to date spot volumes have risen to a total of 18.6mlbs compared to 26.9mlbs over the same period last year.
Yet low prices have not discouraged every new uranium project.
Only recently has a longstanding ban on uranium mining been lifted in the state of Western Australia. Having been given local indigenous approval, Toro Energy ((TOE)) is proceeding to definitive feasibility study (DFS) status for its Wiluna project. The project consists of six deposits, two of which have received government approval for mining, providing the opportunity for Wiluna to become the state’s first ever uranium mine.
Hot on the heels of Toro is Vimy Resources ((VMY)). A DFS on the company’s Mulga Rock project is expected to be completed early next year. Mulga Rock has been granted environmental approval but awaits final government approval.
Bannerman Resources ((BMN)) has not given up on its Etango project in Namibia. Bannerman has been denied a Namibian mining licence for the project, but only because of low uranium prices. The company has the right to re-apply if prices improve.
One transaction was reported in the uranium term markets last week, TradeTech reports, for a small mid-term delivery. TradeTech’s term market price indicators remain unchanged at US$28.15/lb (mid) and US$40.00/lb (long).
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