Weekly Reports | Apr 27 2022
The spot uranium price tumbled last week, reflecting general financial market volatility.
-Uranium spot price plunges -16%
-Traders the major sellers
-Uranium has become a financial instrument
By Greg Peel
Metal and mineral markets have always been subject to speculation, but this is mostly evident in futures markets which can be settled for cash rather than physical markets, which require delivery and storage of the metal/mineral.
A couple of decades ago, when the uranium price was soaring on the earliest, and premature, signs of the death of fossil fuels, a uranium futures contract was listed. It never took off however, because by then the spot uranium price had begun to retreat rather rapidly.
In the past couple of years, the spot uranium market has been tracking an accelerating path back to the levels last seen before the Fukushima disaster, which appeared to spell the end of nuclear power.
The long rally has not been driven by end-user restocking per se, but rather a step-up in non-user speculative physical trusts which buy and hold physical uranium as a financial instrument.
Most recently the Sprott Physical Uranium Trust (SPUT) has dominated such investor speculation, often solely responsible for weekly spot price gains even as new nuclear reactors are being commissioned.
But the problem of speculators in any market is that they can push markets up in bubble-fashion but the end result is the potential for sharp pullbacks when speculators start to panic.
The spot uranium market is not familiar with -16% falls in a week, but that’s what happened last week when industry consultant TradeTech’s weekly spot price indicator dropped -US$10.25 to US$53.30/lb.
Financial Market Impact
There was no uranium-specific trigger for the fall – indeed the push to net-zero and the supply constraint potential from Russian sanctions suggest uranium demand should remain elevated. It was simply a case of all financial markets taking a “risk-off” tumble, and uranium has evolved into a “financial market”.
What’s more, almost all of last week’s spot transactions occurred right at the end of the week, when Wall Street reflected a sudden shift out of resource sectors even before commodity prices started to give way. TradeTech reports 300,000lbs U3O8 equivalent changing hands on Thursday, followed by 1mlbs on Friday, at ever lower prices through the day.
Selling was mostly reserved to uranium traders – market intermediaries – and not the likes of the SPUT which are buy-and-hold funds disinterested in short term volatility.
The general global financial market sell-off was initially triggered by increasingly hawkish policy rhetoric from the US Federal Reserve, implying a run of oversized funds rate hikes in a rush to a “neutral” policy setting. The Fed had the earlier assumption of inflation being “transitory” very, very wrong, and has to rapidly play catch-up.
This has led to concerns the Fed, having underplayed its hand through all of 2021, will now overplay its hand and send the US economy into recession. Recessions are not healthy for commodity demand.
Nor are lockdowns in China, and while the end of last week saw lockdowns in Shanghai as being stricter and longer lasting than was earlier assumed, the spread of covid to Beijing led to further financial market capitulation early this week, with resource sectors the hardest hit.
The swing back to nuclear energy as a “green” source of power, and the threat of sanctions on Russian uranium exports, have not changed in a week.
Financial market sentiment has.
TradeTech’s uranium term price indicators are unchanged at US$58.00/lb (mid) and US$50.00/lb (long).
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