Commodities | Mar 15 2011
By Greg Peel
Regular readers of this weekly report will appreciate that it summarises activity in the spot uranium market from the week before as noted by industry consultant TradeTech, and notes the indicative price for the week set by TradeTech. While this week's report will briefly summarise last week's activity, let us be clear all reported transactions occurred in blissful ignorance of what was about to happen.
Last week's Uranium Report noted that after a few weeks of falls in the uranium spot price, the announcement from the US Department of Energy that it would commence an incremental selling program of 4.2mlbs of stockpiled uranium over three years suggested that a cap would be placed on the market as a result despite the orderly and tender-based nature of the program. Speculative holders of uranium have become a little nervous of late, but genuine buyers have still been keen to pick up supplies at levels below earlier peaks.
That was underlined last week when the DOE's parcel met with “exceptionally strong” interest from buyers, as TradeTech notes. All up seven transactions totalling 1.2mlbs were concluded and TradeTech's weekly spot price indicator rose US$1.00 to US$67.75/lb.
Then the earthquake hit. TradeTech notes that as of Friday, when little was yet known, both buyers and sellers simply jumped to the sidelines.
We now know of the extent of damage to nuclear reactors in Japan and the possibility of meltdown. We also know of the bigger picture threat to the global nuclear power industry as a viable alternative energy source as represented by double-digit percentage sell-offs of listed uranium producing stocks across the globe. Clearly those stock sell-downs are also anticipating a big drop in the spot uranium price.
Last night fellow uranium industry consultant UxC suggested weakness will indeed hit the spot uranium market as speculative holders join in the panic. Speculative players, such as hedge funds, were blown away in 2007 when the price peaked at US$136-138/lb and then collapsed, were scared away for the market for some time, but recently have been moving back in as the uranium price has run from the 40s to the 70s. Positions are nowhere near as significant as 2007, so UxC does not expect a price collapse back to the US$30 lows. But panic and a temporary withdrawal from genuine buyers could see more recent lows above US$40/lb tested, the consultant suggests.
The impact will thus be sorely felt by producers and builders of reactors in the short term, but the reality is that only some 20% of Japan's nuclear capacity has shut down, reactors across the rest of the globe are still fully operational, and China's nuclear ambitions remain the swing factor in longer term uranium demand. Operating utilities will still need to purchase uranium, and if they were keen under US$70 then they should be more keen under US$50.
But what of the future? UxC notes the Japanese disaster has encouraged Germany and Switzerland, at the least, to reassess the security of their own reactors and to contemplate “possibly reducing their reliance on them”.
There is thus likely to be short term turmoil in the uranium market on the “fallout” from the Japanese disaster. As for the longer term ramifications, it's too early to know.
