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Uranium Week: Producer Power

Weekly Reports | Nov 06 2018

Cameco’s guidance on intended purchases prompted another step-up in the uranium spot price last week.

-Cameco reveals buying intentions
-Spot price rises yet again
-Forward curve narrowing

By Greg Peel

Canada is the world’s second largest producer of uranium and Canadian-listed Cameco is the world’s largest corporate producer of uranium. Or at least it was, until the company temporarily but indefinitely slashed production in the face of non-commercial prices.

Rather than producer uranium at a loss, Cameco has spent the year buying uranium on the spot market to satisfy delivery contracts. The company’s September quarter earnings report, released last week, showed a year on year drop in uranium production of -52% to 1.5mlbs U3O8, but a 15% increase in sales volumes to 10.6mlbs. Sales averaged US$30.18/lb or -7% less than last year.

Producer purchases, along with investor interest, has driven the uranium spot price up 27% above the 2017 average price, with the impact more noticeable in past weeks. The question is: How long will Cameco and others keep buying in uranium for before the price is sufficient to restart production?

Cameco has not revealed that price, but it did reveal at its result release that it intends to buy another 1-3mlbs in the spot market through to year-end and a further 10-12mlbs in 2019.

The spot market was quiet for most of the week as market participants attended the annual International Uranium Fuel Seminar in Boston, and industry consultant TradeTech’s spot price indicator remained unchanged. Right up until Friday, when Cameco released its report.

TradeTech’s weekly spot price indicator closed up US80c on Friday at US$28.80/lb on 2mlbs of U3O8 equivalent changing hands during the week, most of it on Friday.

Flattening Curve

The month of October ended Wednesday, at which point the spot indicator was US$28.00/lb, up from US$27.65/lb at end-September. A total of 47 transactions were recorded in the month, representing 6mlbs U3O8 equivalent.

Increased activity in the spot market has come at the expense of the term markets. The bulk of requests at present is for 2019 delivery, which counts as spot, or mid-term delivery, while interest in longer term delivery has gone quiet, TradeTech notes. There are term market tenders out there but last month saw little action.

The result is the gap between spot and term pricing is continuing to narrow. TradeTech’s end-October mid-term price indicator of US$30.00/lb remains unchanged from end-September, and spot is closing the gap fast, while the consultant has lowered its long-term indicator to US$30.00/lb as well, down from US$31.00/lb.

At this rate, the market will be in backwardation by next year. That might spark up some utility interest.

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