Weekly Reports | Oct 01 2019
This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN
It was another slow week in the uranium market, while Macquarie has dissected the demand/supply equation going forward.
-Cuts on both demand and supply sides
-Uranium supply surplus to continue
-Activity again subsides
By Greg Peel
Macquarie Group's commodity analysts estimate global uranium demand, from power generators and investors combined, will fall -1.9% in 2019 and a further -4% in 2020. Currently the largest consumers of uranium are the US (30%), France (14%), China (12%) and Russia (8%). China's consumption is expected to increase by 5% per year for the next five years.
On the supply side, 2018 saw an unprecedented -10% annual drop in production, which, net of inventory drawdowns, resulted in an -8.5% reduction in total supply, mainly due to Cameco's indefinite closure of its McArthur River mine and Key Lake processing facility in Canada. Cameco has an annual production capacity upward of 30mlbs per annum but will likely produce only 18-20mlbs in 2019, Macquarie forecasts, representing an -8-10% cut in global supply.
On the balance of reductions in both demand and supply, Macquarie anticipates a 2-3% surplus of uranium in 2019-20, sufficient to keep the price capped at current levels. The analysts have a long term forecast price (inflation-adjusted) of US$32/lb.
Production cuts by Cameco, Kazakhstan's Kazatomprom and Australia's Paladin Energy ((PDN)) together cut 2018 production by -24mlbs U3O8, or -15% of 2019 supply.
Paladin's Kayelekera mine in Mali remains shuttered while moves are underway to restart operations at the company's flagship Langer Heinrich mine in Namibia. Management is optimistic about uranium prices ahead. Cameco is currently buying uranium in the spot market to satisfy delivery contracts as it is cheaper than the cost of production and has no plans to do otherwise until prices improve. Kazatomprom is the world's swing producer and recently extended its cap on production through to 2021.
Cameco and Kazatomprom together provide the greatest impact on the supply side of the equation.
The Fukushima disaster of 2011 still reverberates in today's global energy industry, Macquarie notes, with Germany planning to shut down seven reactors and Belgium seven reactors – just to name two – representing -4% of global demand, in a backlash against the dangers of nuclear power.
For the US, reactor closures are a commercial decision, given lack of competitiveness in the country's energy mix. Six reactors have closed since 2013, eight are scheduled to be closed by 2025, while two new reactors are being built with government support. The US currently has 97 operating reactors, providing 20% of US electricity supply.
In Japan, only nine of a fleet of 39 reactors still able to be operated post-Fukushima have restarted generation, with another 17 seeking restart approval. The Japanese federal government is targeting a return to at least 20% nuclear in its energy mix by by 2030 but the pace of restarts has been, and no doubt will continue to be, hampered at the local government level due to public protest.
Were the pace of Japanese restarts to pick up, it would be positive for market sentiment, but given Japanese utilities are for the most part still sitting on their uranium inventories there is little chance of a near-term spike in demand.
Global nuclear power generation has fallen to 10% of global electricity supply, Macquarie notes, from 14% pre-Fukushima. There are 444 reactors currently operating across the globe and 55 being built.
The swing player on the demand side is China, which has 47 reactors now in operation, representing 4.2% of the country's electricity production, and another 11 currently under construction.
Nothing to see here
The uranium market once again fell into the doldrums last week. Industry consultant TradeTech reports only 500,000lbs U3O8 equivalent changing hands in five transactions, which is about half of the recent weekly volume trend in what is already a weak trend in general in 2019.
TradeTech's weekly spot price indicator has fallen -US10c to US$25.70/lb.
There were no transactions reported in term markets, although several utilities are exploring potential purchases. TradeTech's term price indicators remain at US$28.00/lb (mid) and US$30.00/lb (long).
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