Weekly Reports | Nov 14 2017
The uranium spot price posted its biggest weekly gain in three years last week.
– Bombshell announcement
– Biggest gain in three years
– Utilities forced into action
By Greg Peel
It was a mixed start to the week in the uranium market, news-wise.
In the six years since the Fukushima disaster, only twelve of Japan’s nuclear reactors, out of a prior fleet in excess of forty, have been granted regulatory approval to restart. Five have subsequently restarted, although currently one is shut for maintenance.
Last week Japan’s head regulator suggested the pace of restarts is unlikely to gain any momentum in years to come. The government’s goal of a return to a 20% nuclear contribution in Japan’s power mix is unlikely to be achieved as utilities struggle with plant upgrades required to satisfy strict new natural disaster protection standards.
And that’s before individual reactors come up against local protest in the process of acquiring go-ahead approval at three levels of government. To date this is why only five of twelve have actually restarted.
France has a different problem. The new government has set a goal of reducing the country’s reliance on nuclear power to 50% from a current 75% by 2025, but last week the French environment minister announced there will be a delay to this plan. The reason is such a swift reduction will result in an unwelcome increase in carbon emissions in the interim.
But just when it looked like the spot uranium price would spend another week hanging around the US$20/lb level with little incentive to go either up or down, as it has for the past five months, out came Cameco with a major announcement.
Bombshell
The world-leading Canadian producer will suspend operations at its McArthur River mine and Key Lake mill in Saskatchewan from January next year, targeting a ten-month shutdown but leaving options open. In order to make good on supply contracts, Cameco will seek an “optimal” mix of production, inventory draw-downs and buy-ins of material.
The company’s flagship Cigar Lake mine will be the remaining asset to continue production. To date, Cameco has been relatively protected from a spot uranium price below the cost of production, given long term contracts set at higher prices. But those contracts are inevitably now rolling off. The company has been steadily cutting back its production for some time as it awaits a spot price recovery, but last week’s announcement was quite material.
So material that the spot price broke free from the gravitational pull of US$20/lb and flew off into space. For the past five months utilities across the globe have comfortably been able to control the market, knowing that sellers will eventually capitulate and drop their prices to below US$20 to ensure a sale, and knowing they are already well-stocked anyway. But Cameco’s announcement suddenly had utilities scrambling over traders and speculators to lock up supply.
Prices subsequently rose with each transaction throughout the week, TradeTech reports, lifting the consultant’s weekly spot price by US$2.90 at week’s end to US$23.15/lb. The biggest weekly price jump in three years came as 1.9mlbs U3O8 equivalent changed hands in 14 transactions – a considerable increase in weekly volume and transaction number compared to past months.
The spot price has now risen 25% in the past year. It seems a considerable amount, but less exciting in quantum off a low base. And last week’s price remains -12% below the 2017 high of US$26.50/lb. There is still a long way to go to reach the cost of new production.
Hence while Cameco’s announcement is price-wise a positive, the reason behind the announcement is no great comfort for others in the market.
Three transactions were reported in uranium term markets last week. TradeTech's term price indicators are unchanged at US$24.35/lb (mid) and US$30.00/lb (long).
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