Weekly Reports | Dec 12 2017
Last week’s production cut announcement from Kazakhstan sparked further volatility in the uranium market for a further price gain.
-Kazakhstan cuts production
-Spot price hits year's high
-Volatility reigns once more
By Greg Peel
Last month leading global uranium producer Cameco announced it would shut down production at one of its major operations in Canada until such time as uranium prices improved. It was the catalyst the spot uranium market needed after months in the doldrums.
The spot price finally broke out of its tight range around US$20/lb and headed towards US$25 before utility buying receded and the sellers moved in once more. Price action has been volatile in recent weeks as the market attempts to quantify the impact of Cameco’s production cuts.
Kazakhstan boasts the world’s largest reserves of uranium and has become a swing player in the market, able to influence prices OPEC-style on production quotas. Early last week state-owned producer Kazatomprom announced it would cut production by -20% for the next three years. The spot uranium market went into a frenzy.
The spot price shot up from US$23.25/lb to US$26.50/lb, which is the previous high price for 2017 posted in April. That was a sufficient level to satisfy the sellers, and by week’s end industry consultant TradeTech’s weekly spot price indicator had fallen back to US$25.00/lb, up US$1.75 for the week.
TradeTech reports seven transactions totalling 800,000/lbs U3O8 equivalent, down from 1.6mlbs the week before. Despite that week’s strong volume, utility buying was absent, ensuring volatility as intermediaries and speculators battled it out and producers sought to buy in to satisfy delivery contracts. Last week saw utilities return to the market.
The Impact?
Uranium producers have been cutting production, idling operations or shutting them down altogether for a couple of years now. To date, it’s had no impact on price. Indeed the spot price has languished in that time. But production cuts from Cameco and Kazatomprom do imply a significant loss of global supply. Again we might draw upon the OPEC analogy, with production cuts from OPEC and non-OPEC members ensuring a rally in the crude oil price.
Consensus suggests uranium production cuts will indeed lead to higher prices. The question is then one of when, and for how long? Cameco has set an initial ten month shut down timetable, subject to review. At some price point Cameco will decide to fire back up again.
And it should be noted that Kazatomprom cut its production by -10% in 2017, clearly to no avail. Will -20% over three years do the trick?
It will come down to the demand side. Here the swing player is China. On the back of China’s reactor building program, research house Morningstar is forecasting a spot uranium price of US$65/lb. But not until 2021.
There was one transaction reported in term uranium markets last week. TradeTech’s term price indicators remain at US$28.00/lb (mid) and US$31.00/lb (long).
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