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Uranium Week: The Outperformer

Commodities | Jan 27 2016

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

By Greg Peel

As we move into 2016 we note that 2015 was a year in which the spot uranium price proved a rampant outperformer. The price has hardly moved much in the past few months, thus uranium has left other commodities such as oil, iron ore and copper in its dust.

This point was not lost on attendees at this year’s Nuclear Fuel Supply Forum held in Washington last week. Hence the mood at the gathering was a bit more upbeat than at previous Forums, industry consultant TradeTech noted.

Uranium had its big price fall in 2011 and despite a couple of blips in between, has been stuck around the low end of the post-Fukushima range for quite some time. The pace of Japanese reactor restarts has been glacial, and most utilities spent 2015 well supplied with stockpiles. Thus demand has been tepid, balanced by forced supply curtailments among producers as uranium prices lingered below the cost of production for many mines.

A demand-supply balance of sorts thus ensured a lack of price volatility in late 2015. But 2016 sees utilities start with a new budget and already interest is quietly building, TradeTech reports. The commodity is also attracting more interest from the speculative side of the market, given its lack of price collapse alongside just about everything else.

On the supply side, we note that Australian-listed Paladin Energy ((PDN)) increased both its production (16%) and its revenue (75%) in the December quarter despite muted prices. Paladin has had to refinance but cost-cutting has clearly provided benefits, alongside a low but, importantly, stable price of late.

The fact the uranium price should not be impacted by a significant fall in oil prices is interesting, given nuclear energy is an alternative to fossil fuels. Economically it would be difficult to justify the very long lead time and high cost of establishing a nuclear power station when the alternatives of coal, oil and gas are historically so cheap. But the global push to build nuclear capacity, particularly in emerging markets, rages on. It is not an economic consideration, it is an environmental one.

With most of the uranium market attending the Forum in Washington last week, uranium market activity was understandably subdued. TradeTech reports five transactions totalling 700,000lbs U3O8 equivalent were concluded in the spot market last week, but there is no change to the consultant’s weekly spot price indicator, which remains at US$34.75/lb.

Utilities are evaluating delivery contract offers in the term markets but TradeTech’s term price indicators remained unchanged last week at US$36.00/lb (mid) and US$44.00/lb (long).

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