Weekly Reports | Nov 07 2017
Morningstar is forecasting a spot uranium price of US$65/lb in 2021.
– Global supply glut overemphasised
– China the sleeping giant
– Climate change to drive government policy
By Greg Peel
The spot uranium price has been stuck in the mire for six months now, unable to break free of the US$20/lb level. Utilities are interested in picking up cheap material below US$20 but back off as soon as prices rise above US$20. Sellers raise their offers as soon as utilities appear, but inevitably are forced to lower them once again.
The reality is uranium remains in a global supply glut. The glut is largely as a result of Japanese reactor shutdowns in 2011 and the glacial pace of restarts in subsequent years. China remains the great hope for uranium producers but the country’s modest fleet currently consumes little uranium and utilities are well stocked.
But all that is set to change, according to Morningstar.
Demand
The research house believes the market is overemphasising the current supply glut and suggests “This situation won’t last much longer”. Global demand will grow some 40% in the next ten years – a “staggering” amount for a commodity that has seen near zero growth in a decade – and supply will struggle to keep pace.
Morningstar forecasts the spot uranium price to rise from US$20/lb to US$65/lb by 2021, as higher prices are required to spur new mine investment. Those producers still in operation, and those mines not having been idled, have been burning cash for years now at below cost spot prices while they hope – pray – that eventually demand must increase. Morningstar sees significant price increases beginning in 2019.
The driving force will be China. China’s structural slowdown portends the end of a decade-long boom for most commodities, Morningstar suggests, but not for uranium. Chinese uranium demand is set to change “in a major way”. Beijing is looking to nuclear to reduce the country’s heavy reliance on coal.
Beijing’s intention stems from the issue of climate change, or more immediately, pollution. The government’s recent foray into curtailments of metal production and forced winter shutdowns of steel-making during peak household heating demand have been based on environmental issues, alongside perceived excess capacity. The past few months have seen Beijing firmly in control of base metal and bulk spot prices indirectly through production restrictions.
In other words, China has the power, pardon the pun. And the rate of new reactor construction will need to be accelerated if the world is to meet its future energy needs while meeting climate change goals, the head of the International Atomic Energy Agency suggested last week.
Meanwhile, rumours of the death of America’s nuclear power industry may yet prove exaggerated.
Support
The state of Connecticut has now joined New York and Illinois in taking action to support nuclear power in order to ensure electricity market resilience. The two-unit Millstone plant in the state will now be granted the same status as zero-emission sources. Pennsylvania has recently passed resolutions to support nuclear energy as a source of baseload power while Ohio is looking to support the industry through promoting “clean jobs”.
Academics in the UK have implored the government to take a significant stake in new nuclear power projects in order to meet the long term needs of the UK economy, in including decarbonisation.
Maybe Morningstar is on to something.
There is a counter-push nonetheless, in the likes of Germany, France and South Korea, where plans are for nuclear power to be capped or phased out.
The Present
It was a busy week in the uranium spot market last week, as is usually the case when the price manages to stick its head above US$20/lb once more. Industry consultant TradeTech reports 1.6mlbs U3O8 equivalent changing hands, sending the consultant’s weekly spot price indicator up US35c to US$20.25/lb.
The week before it fell -US30c.
The month of October saw 3.8mlbs change hands in 25 transactions. The month-end spot price of US$20.20/lb was down from an end-September price of US$20.40/lb.
One transaction was reported in uranium term markets last week. TradeTech’s mid-term price indicator has been trimmed to US$24.35/lb from US$24.50/lb, while the long-term indicator remains at US$30.00/lb.
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