Commodities | Aug 02 2016
The spot uranium price was boosted last week by some long-awaited utility demand.
By Greg Peel
Uranium industry consultant TradeTech noted a week ago the Nuclear Energy Institute’s Nuclear Supply Forum that week had been a less gloomy affair than those in recent times. There were indications long-awaited utility demand was set to enter the market.
Such demand did arrive last week from utilities, with traders hot on their tails. Sellers quickly backed off to send traded prices briefly surging to as high as US$26.75/lb before falling back toward the end of the week. By week’s end 1.1mlbs of U3O8 equivalent had changed hands in nine transactions. TradeTech’s spot price indicator closed the week, and the month, at US$25.90/lb, up US65c from the week before, but down US50c from end-June.
Over the month of July, 22 spot transactions were concluded representing 2.2mlbs U3O8 equivalent. Utilities may have made a welcome return toward month’s end but traders represented 80% of the buying over July, TradeTech notes.
Four transactions were reported in term markets last week, making seven for the month, all for mid-term delivery. Intermediaries were term market buyers alongside utilities. TradeTech’s term price indicators have fallen by US75c to US$27.40/lb (mid) and US$2.00 to US$38.00/lb (long).
July was a month featuring ups and downs in both prices and newsflow. Mid-month the spot prices traded to an eleven-year low of US$25.00/lb. Over the course of the month, the uranium market was heartened to learn 2015 had seen the highest growth in nuclear plant capacity in 25 years, but despondent to learn a number of legacy reactors in US are planning to shut down due to no longer being economic.
Last week brought news Electricite de France had approved an investment in a new reactor build at Hinkley Point in the UK and 24 hours later the UK government announced it would delay its own approval. The world’s biggest producer – Canada’s Cameco – last week reported a C$137m loss in the June quarter on a 37% fall in uranium sales and an 8% fall in realised prices.
For many a global producer it’s a case of hoping to ride out this period of low prices in the hope of higher prices sometime in the future. As far as the analysts at Macquarie are concerned, low prices may be the norm for a while yet.
2015 was a year in which uranium outperformed commodity peers simply by not falling. 2016 has featured substantial rebounds for many commodity prices, but the uranium spot price has fallen 27% year to date.
The spot uranium market has always been illiquid, Macquarie notes, leading to often sharp price fluctuations. The bulk of material is bought for stocking and forward coverage of reactor requirements, but having stocked up significantly in 2015, the buyers in the major demand centres of the US and China have eased off in 2016.
In the US it’s been a matter of planned reactor closures due to poor economics. The US nuclear power industry is suffering from a lack of recognition of being emission-free once operating, when it comes to government subsidies. Alternative energy sources are otherwise enjoying handsome subsidy incentives, and the abundance of shale gas has led to cheap gas-fired plants being a more viable alternative for electricity generation.
To date, nine US plants have expressed the intention to retire by 2024, representing over 4GW of power, and experts suggest another 4-5GW is also at risk. A net 9GW of closures would represent around 9% of current US annual uranium demand. There is some hope the industry can successfully lobby for a better subsidy outcome.
The good news is China is currently adding that potentially lost US capacity every one and half years. But capacity itself is not the issue in China, rather inventories. The bad news is China has already amassed 16 years’ worth of uranium consumption at current capacity or nine years’ worth at projected 2020 capacity. If China were to completely cease buying uranium tomorrow, notes Macquarie, it would still get to 2020 with five more years of material on hand.
No wonder Chinese buying has slowed in 2016.
The result is spot uranium pricing has now returned to being driven by the cost curve, Macquarie points out, rather than by utility demand. To that end, some 30% of global production is currently achieving prices below cost, the analysts estimate. This does mean the downside for uranium prices is limited, as such production can only hold on for so long.
But in an environment of falling utility demand, it is hard to see where uranium price upside might come from, Macquarie concludes.
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