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Uranium Week: Looking To 2018

Weekly Reports | Dec 19 2017

The uranium market went quiet last week following a period of volatility, as utilities look towards 2018.

Kazatomprom cuts reverberate
– Impact unknown
– Market winds down for 2017

By Greg Peel

“Given the challenging market conditions, and in light of continued oversupply in the uranium market, we have taken the strategic decision to reduce production in order to better align our production levels with market demand. We believe that these measures strongly underline our commitment to ensuring the long-term sustainability of uranium mining; a critical component in the generation of clean, carbon free electricity around the globe.”

This was the comment from Kazakhstan’s state-owned uranium producer Kazatomprom two weeks ago, which led to another rally in the spot uranium price on top of the break-out rally sparked by Cameco’s earlier production shutdown announcement. In the wake of the two major announcements the spot uranium market had been volatile as utilities re-emerged as buyers and traders and speculators battled it out.

The question remains as to just what impact supply constraints will have on the uranium market in 2018. Kazatomprom had cut its production by -10% for 2017 and this had no impact on price. The market had expected another -10% cut for 2018 but instead got -20% over three years.

To put things into perspective, Kazatomprom, the world’s biggest uranium producer, produced 30.4mlbs U3O8 in 2016. In the same period, production at the world’s largest uranium resource, BHP’s ((BHP)) Olympic Dam in South Australia, was 8.4mlbs.

Publicly Minded

The large cut has been prompted, market commentators suggest, by the state-owned company’s plan to move to a public listing in the first half of 2018. Such a cut is consistent with a company moving into the public arena, stockbroker DJ Carmichael said in a note last week, rather than a state-owned entity.

“The statement from Kazatomprom indicating that the move was to ensure the long-term sustainability of uranium mining, indicates the pressure being exerted on uranium producers at the current low prices,” the broker suggested.

DJ Carmichael believes the impact of the Cameco and Kazatomprom cuts will eventually flow through to uranium term market pricing, and suggests 2018-19 could see a resurgence as utilities begin to scramble to secure supply into the 2020s.

Right now, utilities are waiting to assess just what the impact might be. Having mostly exhausted their 2017 budgets, utilities are now looking to next year. The spot market went very quiet last week following the volatility that followed the two production cut announcements.

Industry consultant TradeTech reports only four spot transactions last week, all off-market. TradeTech’s weekly spot price indicator has fallen -US40c to US$24.60/lb.

TradeTech’s term price indicators remain at US$28.00/lb (mid) and US$31.00/lb (long).

This is the last FNArena Uranium Weekly for 2017. The Weekly will make a return in January.

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