Weekly Reports | Feb 08 2022
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The European Commission has decided nuclear is a “green” transition energy.
-Volatile uranium market in January
-EC decides nuclear and gas-fired power are green in transition
-Analysts see upside to prices ahead
By Greg Peel
The month of January proved to be a very volatile one for the spot uranium market. The earlier part of the month was dominated by speculative buying from the Sprott Physical Uranium Trust, which acquired 2.7mlbs U3O8 in the period. Canaccord Genuity estimates the SPUT has some $2.4bn of buying power left in its US$3.5bn at-the-market facility.
But SPUT’s buying came to a screaming halt in the latter half of the month, as the Fed set off extreme financial market volatility in switching to a hawkish monetary policy stance. The entry of the SPUT and other speculative-only players in the market have ensured uranium has become just another financial market instrument subject to overriding market volatility.
Also disrupting the market in January was civil unrest in Kazakhstan, although this appears not to have disrupted Kazak uranium production, alongside Ukraine-Russia tensions.
One feature of January was the return of long-lost buying from utilities. When SPUT called a time-out and spot prices pulled back, utilities moved in to pick up some bargains. Producers and intermediaries are prepared to offer lower prices to actual end-users, as opposed to speculators, to maintain healthy long term relationships.
In the wash-up, and despite intra-month volatility, industry consultant TradeTech’s spot price indicator ended January up US$1.15 from end-December at US$43.15/lb.
TradeTech’s term price indicators have increased to US$44.50/lb from $43.00/lb (mid) and to US$45.25/lb from US$45.00/lb (long).
It’s all in the transition
Amidst the long-running debate as to whether nuclear energy can be classed as “green”, given it might be zero-carbon once running but is a massive carbon emitter in the construction and start-up phases, the European Commission has moved to label nuclear as a “green investment” in its Sustainable Finance Taxonomy, being sustainable over a transitional period.
The key here is “transitional”. Governments around the world largely ignored climate change up until last year, and then went into a panic, rushing out net-zero by 2050 emission goals. In the interim, governments are coming to realise that renewable energy is simply not yet ready to meet global baseload power demand. More investment is needed, and quickly. In between, the world can only “transition” away from fossil fuels.
Which is why the EC has also labelled gas-fired power as “green”. It’s still a fossil fuel, but it is much “greener” than coal- or oil-fired power. Presumably the “transitional” aspect of nuclear power, noting a nuclear reactor takes about a decade to build, and then might be functional for four or more decades, is that the “dirty” part of construction and start up ultimately gives way to zero-emission power (not counting emissions from the ongoing need for uranium mining, or the problem of nuclear waste disposal, or the impact of heated water pumped from reactors into rivers, seas and/or oceans).
The EC’s new taxonomy is nevertheless still in the proposal stage, and in six months needs to be voted on by all member nations. Twelve EU members have to date stated their individual intentions to include nuclear in their clean energy transition plans.
Europe’s nuclear intentions are but one potentially positive driver of the uranium price in 2022 and beyond. China has announced plans to build no less than 150 reactors by 2035, while Japan's new Prime Minister has reconfirmed his support for additional reactor restarts.
Meanwhile, primary mine supply sits at a 12-month low. Canada’s Cameco and Kazakhstan’s Kazatomprom, which between them account for around 60% of global uranium supply, have over the past two years been forced to curb production due to the constraints of the pandemic.
New supply development is underway across the globe, but despite a bounce in the uranium price in recent times from the non-commercial levels around US$20/lb pre-pandemic, TradeTech estimates the current average cost of production to be US$46.10/lb, implying ongoing development is a still a bet on higher future prices.
Cameco and Kazatomprom can still one day return to full production, but elsewhere mature mines are being shut down, including Energy Resources of Australia’s ((ERA)) Ranger mine and Cominak in Niger, further weighing on near term supply.
On the other side of the coin, Canaccord believes 2022 will be the year utility demand returns in a meaningful way, on a need to restock inventories.
Shaw and Partners, aside from noting SPUT buying is not yet complete, points out SPUT isn’t the only speculative uranium fund in town.
Consensus has it that while the spot uranium market will likely remain volatile in the near term, as above-mentioned issues play out, the risk for prices from here is to the upside.
For the week ending last Friday, TradeTech’s spot price indicator fell -US20c to US$42.95/lb.
Six transactions were reported, totalling 800,000/lbs U3O8 equivalent.
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