Commodities | Nov 13 2012
By Andrew Nelson
Over the last six months, uranium prices have refused to cooperate with the pundits and prognosticators, stubbornly marching south despite the fact rising demand is highly anticipated and the fact current spot prices are not high enough to keep sellers in business much longer.
Yesterday, FNArena re-published an interview with uranium market commentator Rick Mills, who again argued there are Reasons To Be Positive On Uranium (click the link, it’s definitely worth a read). It’s really the same story we’ve been hearing for month: Japan needs it despite the current political issues surrounding nuclear energy, Europe still needs it, China needs it and will soon be needing much more. Also, supply is constrained and is likely to reduce as current prices curtail further production and new production take quite a while to come on line. It’s all true, but it has been true for a while now and it hasn’t stopped the uranium spot price from falling to nearly US$40/lb this month.
The reason for this is quite obvious. Despite what may happen down the road, right now there is more than sufficient supply and buyers are having a great time in singling out producers from the herd and getting them to drop prices on the assumption some revenue must be better than none. It’s not a question about future demand, I bet we can all agree it will turn at some point. The real question is when and the only answer that has been offered is: soon?
In the meantime, all sellers have to hold on to is at least the short-term spot price hasn’t fallen below US$40 per pound since early in 2006, so there’s a strong floor in place. We were just US$0.75 above that floor when FNArena covered the uranium spot market early last week and since then, there’s been a tiny little bounce. Industry consultant TradeTech reports that by last Friday, the uranium spot price had lifted US$0.25 to rest at US$41/lb.
There was a bit of new demand in the spot uranium market last week, with a non-US utility entering the market looking for over 1m pounds of U308 for delivery in 2013. Of course, the news placed a bit of upward pressure on prices and that’s where we got the extra quarter.
In the meantime, the downward trajectory of prices is seeing an increasing number of producers looking to optimize operations by cutting costs and in some cases by cutting production and production plans. This is surely one way to address current oversupply.
Despite the news of new demand, the reality was there were just four transactions reported over the course of last week totalling less than 500,000 pounds. As always, buyers included utilities and intermediaries, while the sellers were producers and traders.
Maybe, just maybe US$40/lb will prove to be the floor, but the question that still remains is when will we start seeing a meaningful and consistent rise in prices?
It could be soon, as TradeTech reports there is new demand due in the term uranium market, with a US utility seeking delivery of material over 2014-2019. There is also another non-US utility continuing to seek 1 million pounds for delivery over a five-year period, while a US utility is also evaluating offers for about 1.2 million pounds and a separate non-US utility continues to look at offers for 750,000 pounds for delivery through 2014-2018.
The news did little to help term prices last week, with TradeTech’s Mid-Term U3O8 Price Indicator holding firm at US$45/lb and the Long-Term U3O8 Price Indicator staying put at US$59/lb.
Analysts at JPMorgan were unmoved by the minor pause in spot price declines and last Wednesday lowered demand forecasts to reflect lower than expected Japanese reactor restarts. However, the broker also cancelled out its new supply assumptions for as long as prices remain as low as they are. The broker expects this latter fact will ultimately lead to a significant jump in prices, but not until 2015.
In the meantime, over-supply in 2013 is likely to keep prices low, thinks the broker. Based on this view, JP Morgan’s new spot price forecasts are US$49/lb in 2012, which is 2% lower than the prior expectation. 2013 should only see US$46/lb, which is down 16% from prior assumptions, while US$60/lb should be achieved in 2014, a cut of 25%. 2015 is a different story, with the broker now forecasting US$90/lb, marking a 20% upgrade to prior forecasts.
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