Uranium Week: Supply Deficit

Weekly Reports | Apr 20 2022

Any sanctions against Russian uranium will only widen an already existing supply deficit as the world looks to nuclear energy as a “green” alternative.

-No word yet on uranium sanctions
-Sprott looks to list in New York
– Quieter week in the spot market

By Greg Peel

US and European Union economic sanctions against Russia have yet to formally include nuclear fuel imports, but the uranium market is making the assumption some type of restriction, that would allow sufficient time for utilities to secure alternative supplies, is inevitable.

The risk that sanctions could be imposed is placing ever greater pressure on utilities to lock in commitments with existing suppliers or emerging suppliers that are perceived to present less jurisdictional, supply chain, and transportation risks, industry consultant TradeTech reports.

This is exerting even more pressure on the market and sellers are responding by actively raising their offer prices or seeking long-term contracts that will protect their future investment.

Change in Sentiment

Following the Fukushima disaster, the world began to shun nuclear power, leading to the price of uranium falling to uncommercial levels for a long period. As a result, uranium production was reduced/halted, and new investment largely dwindled, with the only notable exception being China.

However, in recent years the world has woken up to the realities of climate change, and subsequently re-embraced nuclear as a reliable source of “green” power. One by one countries have moved to adopt carbon-neutral by 2050 policies, and suddenly demand for uranium is back. This demand has nevertheless met a dearth of supply.

Hence the world was already facing a supply deficit long before Russia invaded Ukraine. Now, the market is facing not only the possibility of a major supply source becoming unavailable if sanctions against Russian nuclear fuel are imposed, but also by buyers choosing to "opt out" from any future business with Russia, TradeTech notes.

Savvy finanicial entities began to move well ahead of the producers and consumers of uranium, kicking off a multi-year rally in the uranium price which has accelerated over the past twelve months, pushing the spot uranium price up 117% in the period.

A case in point is the Sprott Physical Uranium Trust.

SPUT for NYSE?

In 2006 the New York Stock Exchange merged with electronic communications network Archipeligo to form the NYSE Arca, which has become the primary exchange for US exchange-traded products.

Last week in a filing with the US Securities and Exchange Commission, NYSE Arca proposed a rule change regarding the proposed listing and trading of the Sprott Physical Uranium Trust (SPUT) on the Exchange, TradeTech reports.

NYSE Arca noted that subject to two exceptions, being "No Redemption of Units" and "No Intraday Indicative Value”, the SPUT units satisfy the Exchange's requirements and qualify for listing.

The Trust currently holds nearly 55mlbs U3O8 and had a total net asset value of US$3.56bn as of last week.

Quieter Week

The shortened week served to dampen down trading in the uranium spot market from the week before. Just under 1mlbs changed hands last week, compared to 1.2mlbs in the prior week, TradeTech reports.

The action was all played out amongst traders and speculators, with producers and utilities all but absent.

TradeTech’s weekly spot price indicator rose US50c to US$63.75/lb, having risen US$4.25 the week before.

Steep backwardation of the market remains evident, with TradeTech’s mid-term price indicator at US$58.00/lb and long-term at US$50.00/lb.

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