Commodities | May 15 2012
By Greg Peel
Industry consultant TradeTech reports five transactions in the uranium spot market last week totalling 500,000lbs of U3O8 equivalent. While speculators dominated the buy-side, utilities were also involved. With no transactions occurring last week in the term market, near-term upward price pressure has eased a little, TradeTech suggests. The consultant's spot price indicator remains unchanged at US$52.00/lb.
Another term buyer is set to enter the market shortly nevertheless, TradeTech notes, and could exert further upward pressure on prices. In the meantime, InvestmentU has been chatting to market participants and finds a fairly bullish outlook.
According to the World Nuclear Association, 60 nuclear plants are currently under construction across the globe, 150 are in the works and another 340 are in various stages of proposal. While the developed world is shunning nuclear at present, emerging markets have no such constraints. China plans to add the equivalent of a new reactor to its grid every one or two months over the next fifty years.
While Japan is at the centre of nuclear energy controversy and is expected to continue stepping up its consumption of LNG, the Japanese Atomic Industry Forum suggests the country faces a 12% shortage of electricity this summer. Additional fossil fuel consumption is now costing around US$40bn per year and carbon emissions are now 14% above 1990 levels. It is understood that Japan will soon be restarting undamaged reactors.
Japan has always stored enough uranium to secure five to six years worth of energy, but has been reducing stockpiles in the wake of Fukushima. It is those sales which are ultimately responsible for the fall in the spot uranium from US$70/lb before the tsunami to stabilise around US$52/lb today. Yet for small but densely populated nations like Japan, Korea, Taiwan and Singapore, which have high energy consumption but limited natural resources, nuclear energy is almost essential. Nuclear reactors require a lot of uranium to fire up but comparatively little to keep running. Thus years of energy security can be achieved on relatively low volume stockpiles. Electricity itself cannot be viably stored, and stockpiles of oil, coal or LNG would have to be enormous by comparison.
“The world is saying, as a consequence of Fukushima, that we need to rely less and less on nuclear power,” says Global Resource Investments' Rick Rule. “But that isn't what's happening on the ground. Many parts of the world, including ironically Japan, are or will be investing heavily in nuclear power on a going forward basis for a very simple reason – when people hit a switch they want the lights to go on”.
France's new president Francois Hollande favours a move away from nuclear energy and specifically campaigned on an intention to close down the country's oldest nuclear power facility. However back in January the French Court of Audit declared that investing in new nuclear reactors or any other form of energy would be too expensive an option, TradeTech notes. Extending the operating lives of its existing commercial reactors would be the best option.
The bottom line is commentators see the price of uranium on an upward trajectory as a supply deficit meets growing demand, which should see US$70/lb reached once more. It just won't happen overnight. A breaching of the pre-Fukushima price level would likely bring a fresh round of speculation into the market, they suggest.
TradeTech's uranium term price indicators remain at US$54/lb (mid) and US$64/lb (long).
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