Uranium Week: Steadily Upward

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

By Greg Peel

The US Energy Information Agency reported last week total US-based production was 2.2mlbs in 2016, down -13% on 2015 and the lowest level since 2005. Currently there are six facilities operating in the US, with three on standby. Seven are in the planning/development stage as owners assess future conditions.

North of the border, Cameco reported a -US$47m loss for 2016, impacted by impairments from the shutdown of its Rabbit Lake mill and the full write-off its Kintyre project in Australia. Cameco also curtailed its ongoing production last year.

The global uranium industry is now at an interesting point.

In what industry consultant TradeTech describes as a “routine” week last week, six spot transactions were concluded totalling 800,000lbs U3O8 equivalent. Trade Tech’s weekly spot price indicator rose US$1.00 to US$26.50/lb.

While that price is still some -60% below pre-Fukushima levels, it is 49% above the December low. While production curtailments from the likes of Cameco and Australia’s Paladin Energy ((PDN)), operating in Africa, have helped to tighten the supply side, it is Kazakhstan’s decision to cut 2017 production by -10% that is providing ongoing price support, TradeTech suggests.

Which begs the obvious question. While a level of global production has been shut down for good and planned developments have been abandoned, most of the incumbent players, including Kazakhstan’s state-owned miner, have simply put operations into care and maintenance or reduced output levels, pending a return to economically viable prices. If the uranium price continues to rise, each project will pass its trigger point at which management will consider production restarts or increases.

And then the price will fall again, if there is no corresponding increase in demand. It is the perennial commodity market dilemma – higher prices eventually lead to increased production which leads to lower prices which leads to reduced production…

Aside from the possibility of legacy US reactors being saved from shutting down thanks to supportive legislation changes, China has now passed its peak in stockpiling (at low prices) for its reactor building program, Japanese reactor restarts will be held up in court from here to eternity, and programs in the likes of India and South Africa while supportive, are a long way off. Meanwhile, governments in Europe are moving away from nuclear energy.

In other words, the uranium price will most likely be supply-side dominated in 2017, and price-wise that implies a negative feedback loop.

There were no transactions reported in term markets last week. TradeTech’s term price indicators remain unchanged at US$27.75/lb (mid) and US$35.00/lb (long).
 

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