Commodities | Nov 18 2008
By Greg Peel
Three weeks ago the spot price for uranium bottomed at US$44-45/lb according to industry consultants. There is no exchange-traded market in uranium but two global consultants post weekly spot price movements based on industry surveys.
A fortnight ago saw the first up-tick. It was only by US$1 to US$46/lb but last week saw a further US$2 to US$48/lb and the market began to gain some confidence. Since the peak at US$138/lb in 2007 analysts have been calling a bottom for sometime – maybe US$75, okay US$60, alright US$50 must be it – but given commodity prices have now collapsed across the globe it’s been hard to maintain the rage.
Uranium’s bubble and burst had run a couple of years ahead of some of the commodity space nevertheless, as hedge funds learnt a sharp lesson in the perils of playing chicken in a market dominated by long term contracts. The “real” market became frustrated with hedge fund shenanigans and basically decided to teach the funds a lesson by refusing to buy anymore yellowcake. It worked. And now that those funds are deleveraging it looks like the “real” players will have the game all to themselves again. Could the uranium price lead the commodity basket once more?
This week the price of spot uranium has jumped by US$5 to US$53/lb. According to consultant TradeTech, delayed demand is now returning in earnest but at the same time the supply side is hitting difficulty. This augurs well for further spot price gains.
A “host” of producers, reports TradeTech, have this week announced a scaling back of financial expenditures or reductions in production forecasts. Exploration is now being put on hold. At the same time, U3O8 inventories have been depleting in recent months ensuring the supply side is becoming tighter. There are similar problems in the uranium conversion market and it appears supplies of UF6 may also dry up. Leading Canadian producer Cameco is considering suspending conversion at one facility due to problems with supply of requisite hydrofluoric acid.
The demand side, on the other hand, has held back as long as it can in order to shake the cowboys out of the market. Now the orders are beginning to back up. “Significant” demand was seen this week, reports TradeTech, as five off-market transactions totalling 1.3m pounds of U3O8 traded at consecutively higher prices. Utilities are now stepping up to the plate but sensing the surge in demand, the sellers are backing off.
In the long-term contract market, the buyers are also putting out to tender for some serious amounts out to anywhere between 2010 and 2018.
That’s the good news. The bad news is that the International Energy Agency has reduced its forecast market share for uranium as a source of power in the future. In its recent World Outlook the IEA decided that as we move towards 2030 the primary source of energy for electricity production will remain as coal, with its market share increasing from 41% in 2006 to 44% in 2030. In the same period, uranium’s market share will fall from 15% to 10%. The IEA has also reduced its total world electricity demand assumption out to the distance (no doubt due to the current recession).
One might argue the inherent vagaries of accurately predicting the state of the world in 2030, but the IEA notes there was a lot of talk from governments over the past few years about building more nuclear plants to fight climate change. Despite the talk, there’s been not a lot of action. The process of building a nuclear plant can take ten or more years and is expensive, and clearly governments have other more pressing spending issues at this point.
So for what it’s worth, that’s the IEA’s current forecast. Until circumstances change again, no doubt.
