Weekly Reports | May 15 2018
US production of uranium has halved in the space of a year, but has not affected the spot price.
-US uranium production falls -50%
-Producers request government action
-Uranium price unmoved
By Greg Peel
Last week the US Energy Information Agency reported US uranium production dropped by -64% in the March quarter from the December quarter and -50% from the March quarter last year.
Production in 2017 totalled 2.4mlbs U3O8, which was -16% less than 2016 and the lowest level of production since 2004.
Two US producers, Energy Fuels and Ur-Energy, are currently petitioning the government to apply a section 232 national security ruling to oblige US utilities to purchase at least 25% of their uranium from domestic producers. This latest data gives weight to the request, the two companies have argued. In a joint statement the two CEOs commented:
“The EIA’s report reflects the harsh reality facing the domestic uranium mining industry. Our companies…have been sounding the alarm about the threats that brought us here. Chief among those threats are state-owned enterprises from Russia, Kazakhstan, Uzbekistan, and increasingly China, that flood the US with cheap uranium and nuclear fuel. We rely on uranium to fuel the nuclear power plants that provide 20 percent of our electricity and nearly 60 percent of our zero-carbon electricity.
"That’s why we jointly submitted a petition to the US Department of Commerce seeking an investigation into the impact of uranium imports on our national security. With US uranium production falling to all-time lows and geopolitical tensions with Russia, the government must act now to protect our energy and national security."
Stalemate
It is just the sort of request one would expect the current US president to cede to. Or perhaps he might go the other way and slap a 25% tariff on uranium imports, as is the case with steel, although the extent to which this tariff will be applied and on whom remains unclear.
The simple problem is US power companies are shutting down, planning to shut down or threatening to shut down their legacy reactors given nuclear power cannot compete with gas-fired generation or subsidised renewable energy sources. And yet the uranium price has not been this low since 2004. Forcing US power companies to purchase 25% of their uranium domestically, and more expensively, will only accelerate reactor shutdowns.
The US government needs to make a definitive decision as to where it sees nuclear power as part of the future energy mix.
Prior to 2004, the uranium price had traded below US$20/lb for decades. The price took off in 2005, the year of the signing of the Kyoto Protocol. Climate change was the buzzword that swung the world’s focus on nuclear energy at a time when fracking was little known about and renewable energy was a long way from offering a commercial solution. Speculative hype took the uranium price to almost US$140/lb in 2007 before crashing spectacularly back down again.
2010 saw a rally back from a trough of US$40/lb to US$70/lb, before Fukushima refocused the world’s attention on the inherent dangers of nuclear energy. The uranium price bottomed out at around US$20/lb once more and has gone nowhere ever since.
In 2018, uranium producers cannot make a profit on US$20/lb uranium and power companies cannot make a profit on US$20/lb uranium.
Last week saw subdued activity in the spot uranium market. Industry consultant TradeTech reports six transactions concluded totalling 850,000lbs U3O8 equivalent. Prices remain divergent between delivery points in Europe and the US.
The bulk of “spot” demand is for deliveries in late 2018 and into 2019, TradeTech notes. While this may bode well for medium term pricing, a lack of near term demand is ensuring little movement in the spot price. TradeTech’s weekly spot price indicator has fallen -US10c to US$21.40/lb.
TradeTech’s term price indicators remain at US$25.50/lb (mid) and US$28.00/lb (long).
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