Commodities | Oct 04 2016
Last week saw the uranium spot price fall a further 8%, to mark a 14% fall in the month of September.
By Greg Peel
There was good news for the global uranium industry in September. The new government in the UK has approved construction of the Hinkley Point nuclear facility, having initially delayed approval given Theresa May’s sudden ascension to prime minister post the Brexit vote. And the Kazakhstan government announced that given current market conditions, the world’s biggest holder of uranium reserves would not increase production for the time being.
But that’s where it ends.
Having fallen US$1.00/lb over the first three weeks of September, industry consultant TradeTech’s uranium spot price indicator fell a further US$2.00/lb last week to US$22.25/lb. That’s an 8% fall in a week and a 14% fall for the month. The spot price has fallen 35% in 2016 and 67% since Fukushima in 2011.
The underlying story is little changed. Despite some increased buying activity in term markets, utilities across the globe remain relatively well stocked with material and therefore are in no real rush to make purchases. Only bargain prices are providing any incentive.
And to that end, there is no reason to jump at current prices given sellers remain the disadvantaged party – well stocked with material they’d like to get rid of in a hurry, be they producers or intermediaries. UBS estimates the current average cost of global uranium production is around US$30/lb, hence the production industry as a whole is presently burning cash, placing many sellers in financial difficulty.
The average cost of restoring idled production is greater, and the price required to incentivise new production much greater.
UBS thus believes the spot price cannot remain under US$30/lb for much longer. Further production shutdowns and abandonments must eventuate. There is no sign of weakness abating as yet, however.
September saw 3.5mlbs U3O8 equivalent change hands in the uranium spot market in 23 transactions. Of that volume, 800,000/lbs changed hands on the last day of the month, and the quarter, alone, explaining why such a sharp fall in price over the week.
Term markets saw four transactions concluded over the month totalling 4.5mlbs U3O8 equivalent. Alongside the weekly spot price indicator, TradeTech’s monthly term price indicators have also tumbled once more. The consultant’s mid-term indicator is down US$3.00 to US$23.70/lb and the long-term indicator is down US$1.00 to US$37.00/lb.
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