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Uranium Week: Unprecedented Intervention

Weekly Reports | Jun 13 2018

Donald Trump is looking to take extraordinary measures to save America’s coal-fired and nuclear power generators.

-US government to intervene in electricity market
-Upbeat mood at nuclear conference
-Spot price continues to tick higher


By Greg Peel

While the US oil & gas industry is enjoying a significant resurgence with the advent of new technologies in shale fracking, the US power generation industry is in crisis. Cheap gas means gas-fired power generators are significantly more competitive for the benefit of electricity generation, while renewable sources are enjoying state-based subsidies.

The price of coal is not cheap in relative terms, thanks to demand from China. Hence coal-fired generators, which also take a much longer time to switch and on off than gas-fired, are uncompetitive. So expensive is the cost of nuclear power generation that even with the uranium price at historical lows, nuclear generation is also uncompetitive.

In the absence of support to date, America’s legacy nuclear plants are shutting down, or threatening to do so. Plans for new plant construction in many instances remains in limbo.

While Americans may be rejoicing at the availability of cheap, gas-fired electricity, the threat of the death of the coal-fired and nuclear generation industries is a risk to the diversification of US power supply, and to that end, national security – two of Donald Trump’s favourite words (just ask Justin Trudeau).

To address the crisis, the president has directed his Energy Secretary to take “immediate steps” to bolster coal-fired and nuclear power plants that are economically challenged, being a matter of both national and economic security.

The plan is not, nevertheless, to provide federal subsidies, but to order electricity grid operators to buy electricity from coal-fired and nuclear plants to ensure they remain in operation. An initial two-year period is being considered, to ensure grid reliability and “promote the national defense and maximise domestic energy supplies”.

As uranium industry consultant TradeTech notes, such an order would represent and unprecedented intervention into US energy markets.

Such an order would also result in a step-up in CPI inflation, given the consumer would be the one paying higher electricity prices.

Down in Monterey

Attendees at global commodity-based conferences typically come away feeling more positive as there is a tendency for all involved to “talk up” their prospects. However recent global conferences for the uranium/nuclear fuel markets, of which there are a handful each year, have been largely dour affairs. It’s a bit hard to make a silk purse out of the sow’s ear that is the market post-Fukushima, as reflected in persistent, historically low uranium prices.

However the mood at last week’s World Nuclear Fuel Market conference, held in Monterey, California, was “upbeat and hopeful” according to TradeTech. The theme of this year’s conference was “Searching for ‘Eureka!’ In the midst of a Seismic Shift”.

While there are no reports of anyone leaping out of the bath and running naked down the street, fuel buyers and investors alike expressed hope in finding purchases in a challenging market. The “seismic shift” refers to changes in fundamentals of the uranium market in recent years.

One source of hope was confirmation from Kazakhstan’s state-owned uranium producer Kazatomprom that it would cut production by -8% in 2018. Kazatomprom is the global swing producer in the uranium market in a similar fashion to OPEC in oil.

OPEC has recently surprised by sticking to its stated production quotas despite a long track record of never having done so before. In 2016, Kazatomprom announced a production cut of -10% in 2017 but managed only just over -5%.

So it’s hope with a grain of salt.

Ticking Up

The upbeat mood was reflected last week in early buying which sent to the uranium spot price up a full dollar to US$24.00/lb mid-week. It proved a bit of an overshoot nonetheless, and by week’s end TradeTech’s spot price indicator was back at US$23.25/lb, up US25c on the prior week.

Six transactions were concluded totalling 650,000lbs U3O8 equivalent.

No transactions were concluded in term markets. TradeTech’s term price indicators remain at US$26.50/lb (mid) and US$28.00/lb (long).

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