Weekly Reports | Aug 14 2018
After several false dawns post-Fukushima, is uranium finally due for a recovery this time?
-Producers destocking inventories
-Utilities need to renegotiate supply
-Investor interest supporting prices
By Greg Peel
Canaccord Genuity notes that since the Fukushima disaster in 2011, the number of uranium miners listed on the Australian and Toronto stock exchanges has dropped to around fifty from a prior 585. Major listed producers have lost some -70% in value. Weak uranium pricing, production curtailments and project deferrals have weighed heavily on investor sentiment, Canaccord observes.
Yet nuclear power still plays a critical role, in some countries, in providing base load energy and meeting global emission targets. As industry consultant TradeTech notes, the spot uranium price has now risen over six consecutive weeks to be 26% higher year on year. As Canaccord asks, are green shoots starting to appear?
The Drivers
One significant recent driver of uranium price upside has been the decision by Canada’s Cameco to keep its Macarthur River mine and Key Lake mill shut indefinitely rather than operate at a loss. The move comes after Kazakhstan’s state-owned swing producer Kazatomprom announced a production cut of -10%. Rather than produce more uranium, both parties have been meeting delivery contracts from stockpiled material.
Destocking currently accounts for up to 20% of uranium consumption, Canaccord estimates. Total enriched inventories held by nuclear power utilities remain at six years, which is sufficient, but utility under-buying and emerging purchasers such as investment vehicle Yellow Cake, newly listed in London, could place upward pressure on mined supply.
Last week Yellow Cake reported it had purchased a further 350,000lbs U3O8 from Kazatomprom, in addition to the 8.1mlbs purchased last month.
Notwithstanding further Japanese reactor restarts, if “mobile” inventory approaches sensitive levels, there is risk to the upside on spot pricing, in Canaccord’s view.
Major producers have enjoyed a level of protection from the plummeting spot uranium price post-Fukushima due to long term delivery contracts priced at earlier levels. As these contracts gradually roll off and are replaced, the producer’s net price achieved is gradually falling. The response is to fulfill contracts via the purchase of much cheaper spot material. Cameco has to date met up to 80% of sales this year through this strategy, in lieu of loss-making new production.
This strategy has its limits, Canaccord warns, given over 50% of utilities will need to renegotiate long term supply contracts over the next five years.
On the demand side, reactor construction remains one of China’s key emission reduction strategies. To date nuclear supplies 4% of China’s energy needs, but capacity is expected to double by 2030.
After several false dawns for a renaissance in the nuclear sector, Canaccord is considering whether things really are different this time.
Upward Trajectory
After its big jump last month, the spot uranium price has continued to tick up gradually in the meantime, TradeTech reports. Last week was relatively quiet compared to prior weeks, with four transactions totalling 550,000lbs U3O8 equivalent reported.
Weekly volumes have averaged just under 1mlbs over the past year, reaching over 1.5mlbs on several occasions.
TradeTech’s weekly spot price indicator has risen US15c to US$26.10/lb.
TradeTech’s term price indicators remain at US$29.50/lb (mid) and US$31.00/lb (long).
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