Weekly Reports | Nov 21 2017
After breaking out of its longstanding range the week before, last week saw the spot uranium price kick on with it.
– Spot price momentum kicks on
– Demand remains critical
By Greg Peel
Two weeks ago, nuclear power utilities were in the box seat, complacent in the knowledge a global oversupply of uranium meant they could sit back and wait for sellers to capitulate at historically low prices in order to shift material. It had been the case for five months. Utilities had drawn a line in the sand at US$20/lb.
Traders of any market know that the more complacent a market becomes that nothing is going to change, it invariably does. In the uranium market that change came last week in the form of leading global producer Cameco announcing it would shutter operations at its McArthur River mine until the price environment improved.
Cameco is not the first uranium miner to shutter production – production has been shutting down all over the world over the past few years – but the McArthur River mine is no small venture. The announcement provided the catalyst to shock utilities out of their complacency. Sellers no longer needed to capitulate. They were now in the box seat, and began backing off prices accordingly.
The result was a rise in industry consultant TradeTech’s weekly price indicator of US$2.90 to US$23.15/lb – the biggest weekly jump in three years. Volumes picked up from prior negligible levels as utilities scrambled over intermediaries and speculators to secure supply. As is typical of a break-out in any market, momentum begat momentum, and last week saw the indicator rise another US$1.60 to US$24.75/lb.
Twelve transactions were concluded totalling 1.4mlbs U3O8 equivalent, TradeTech reports, as utilities competed to secure supply for the first two quarters of 2018.
Is this the beginning?
The last time the spot uranium price saw such a “pop” was back in November 2015. In that case the price jumped 15.9% in the month. This month has seen a 22% gain to date. Last time the bounce proved short-lived. It remains to be seen how long this bounce will last.
There are parallels here with OPEC and the oil price. OPEC, along with Russia, has curbed crude production in order to spark a rise in price, and it has worked, so far. No one expected the cartel to adhere to its target let alone stick it out, but it has. Cameco plans to shutter McArthur River mine for ten months but that is not a pledge. The company will reassess as the months go by.
The biggest enemy of higher prices, they say, is higher prices. If prices rise because supply is removed, it doesn’t take long before supply is reinstated and prices come back again. Realistically, support must come from the demand side if price rises are to be sustained.
In a nutshell, that means China. China is the only country with a nuclear energy expansion program sufficient to move the demand dial. We can write off Japan, and while emerging countries beyond China are also increasing their nuclear focus, collectively they are balanced out by planned reductions in Europe and uncertainty over the future of legacy US reactors.
China has been buying uranium at cheaper prices ever since Fukushima broke the market. Until those stockpiles are chipped away at, a sustainable rise in the uranium price will be difficult to achieve.
Two transactions were reported in uranium terms markets last week. TradeTech’s term price indicators are unchanged at US$24.35/lb (mid) and US$30.00/lb (long).
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