Commodities | May 20 2014
By Greg Peel
The week before last, industry consultant TradeTech’s uranium spot price indicator was unchanged from the week before that at US$29.00/lb. It was the first week since end-January the price had not fallen. With US$30/lb considered roughly the line in the sand of average production cost, it seemed as if finally the elastic band may have stretched to its extent of post-Fukushima weakness.
But last week proved this but a mere fleeting brush with stability, let alone a trough. The bad news is TradeTech’s spot price indicator is down another US75c to US$28.25/lb.
Last week the US Department of Energy released its latest Secretarial Determination regarding management of its excess uranium inventory. The determination allows for sales of no more than 2705 tonnes of uranium for each of the years 2014-22. Last year the DoE’s Uranium Inventory Management Plan called for sales to drop to 1700 tonnes from 2018.
It seems remarkable the government would choose to kick a struggling market when it is clearly down, given a supposed legal obligation to ensure such sales “do not have an adverse material impact on the domestic industry”. The DoE found there would be no material impact. The Uranium Producers of America begged strongly to differ.
The good news is that the buy-side has indeed been roused by the fall in the uranium price to below the production cost barrier. TradeTech reports eight transactions in the spot market last week totalling 1mlbs of U3O8 equivalent. Volumes have not hit the million mark since March.
In other news, the US Energy Information Administration announced last week that US commercial nuclear plants purchased a total of 57mlbs of U3O8 equivalent in 2013 at a weighted average price of US$51.99/lb, down from 58mlbs purchased in 2012 at US$54.99/lb. Macquarie highlights the reason behind uranium’s price decline as a simple matter of global excess inventory meeting insufficient demand.
The bad news here, as Macquarie notes, is that “contract coverage” is currently high, meaning utility requirements for fuel can largely be met by deliveries already scheduled on long-term contracts. There is thus little reason to enter the spot market for volume, hence the spot market has the potential to keep on falling.
TradeTech’s term price indicators remain unchanged at US$33.00/lb (mid) and US$45.00/lb (long).
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