Uranium Market Tighter Than Most Think

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By Andrew Nelson

Uranium prices have been fighting an uphill battle ever since the Fukushima disaster shut down all but two of Japan’s fifty nuclear reactors. Spot prices for the commodity have fallen around 70% from the peak around $US135 a pound in 2007, while many other minerals have seen prices rise. Yet analysts are increasingly of the opinion the market is much tighter than most realise and there has been too much focus on Japan and the risk of their facilities remaining closed.

Toro Energy ((TOE)) chief executive Vanessa Guthrie says that 2013 will be the year the supply and demand equation turns in favour of the uranium industry.

''Uranium is almost through the bottom of the cycle and we are starting to see some return of interest, even if that's not yet investment in the sector,'' she said.

This is borne out by comments from Energy Resources of Australia ((ERA)), who recently advised that current prices below $US50/lb were preventing new projects from entering production.

One of the most likely supportive factors for a uranium price recovery is China. After Fukushima, many were of the view that China would stop work, but it is slowly becoming apparent the country is determined to move away from what is a massive dependency on coal. Nuclear energy is an obvious answer.

China’s economic planning agency was told this week that Chinese nuclear power production would grow by 20% this year. According to a report in WA Today, the Chairman of the China Guangdong Nuclear Power Group confirmed China would install an additional 3.24 gigawatts of nuclear power this year, taking capacity from around 12 gigawatts to just shy of 16 gigawatts.

The news won’t send shock waves through the market because it was pretty much expected, but it is still a tangible sign there is life in the market and new demand being added.

The World Nuclear Association has already reported that China has 51 more uranium plants on the drawing board. No one can really guess as to the timing of the approval processes that will be needed to kick off these projects, but you can bet Australian uranium miners like Paladin Energy ((PDN)) and Toro Energy are on tenterhooks.

Analysts at Credit Suisse expect demand for uranium to be weak enough to keep the price below $US48 until at least June, but after that, who knows. It seems the Japanese government is at least talking up the prospects of restarting more reactors, but at the same time the government is intent upon establishing new standards, which will likely prevent any reactor restarts this year.

Conversely, WA Today reports that Canada's Cameco, the third biggest uranium producer globally, says that Japan will have eight reactors up and running by Christmas.

At the same time, there are a number of issues that are continuing to tighten the supply side of the picture. The arrangement between the US and Russia that converts old nuclear weapons into fuel for nuclear power ends this year. That’s around 10% of supply coming off the market. Then you have BHP Billiton's ((BHP)) decision to mothball the Olympic Dam expansion, one of the world's biggest uranium reserves.

In the meantime, industry consultant TradeTech saw a continuation of the recent steady activity in the uranium spot market last week. There were five transactions involving some 800,000 pounds of uranium, with intermediaries, utilities, and producers the buyers, while intermediaries and producers were the sellers.

TradeTech notes that at this point, supply and demand are pretty finely balanced, with neither sellers keen to drop prices nor buyers keen to offer any more. As such, TradeTech’s Weekly U308 Spot Price Indicator stayed put at US $42.25 per pound last week.

There was one deal transacted in the term market last week for delivery beginning in 2016. There was no new demand, although TradeTech notes there are a few utilities on the sidelines that are expected to join the term market over the next few weeks. The one purchase and talk of new demand did little to alter term prices, with TradeTech’s Mid-Term U3O8 Price Indicator standing pat at US$46.00/lb and the Long-Term U3O8 Price holding firm at US$57.00/lb.
 

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