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Uranium Week: Further Supply Cuts

Weekly Reports | Apr 14 2020

Kazatomprom has moved to formalise virus-related production shutdowns across its operations, sending uranium spot prices higher still.

-Kazak restrictions impact uranium production
-Cameco moves to shutter more facilities
-spot and term prices on the move in response

By Greg Peel

The Kazak government has imposed measures which now cover all of state-owned Kazatomprom’s regions of operation, order to stop the spread of the virus. This has led to a reduction in staff at mine sites and a three-month period of reduced recovery operations, hence lower uranium production.

Kazatomprom is working with its joint venture partners, which include Canada’s Cameco, on "assessing the full impact and detailed implementation of this decision across all of Kazakhstan's uranium mines," industry consultant TradeTech reports.

Based on threes month of reduced operations, Kazatomprom expects Kazakhstan’s 2020 total production volume to decline up to -10.4mlbs U3O8 from the previous forecast of 59.1-59.3mlbs U3O8, although it noted the impact on production may vary from this estimate.

The company nevertheless does not expect reduced production to impact on 2020 sales obligations which can be satisfied from stockpiled material. It will however impact on joint venture partners, given their respective shares of production will be hit. Cameco has announced an expected loss of -600,000lbs U3O8.

Meanwhile, Cameco continues to shut down its Canadian operations. Added to the company’s list of shuttered mines and mills last week were the company’s Port Hope UF6 conversion facility in Ontario, thus forcing the closure of the Blind River UO3 refinery, UO3 being required to produce UF6.

The plants will at this stage close for four weeks and summer maintenance will be brought forward where possible.

Price Pressure

Traders getting in on the act, and producers requiring to purchase material in the spot market to satisfy contracts, continue to push spot prices higher as supply dwindles.  A number of utilities were also active on the buy-side last week.

TradeTech reports ten transactions totalling 1.5mlbs U3O8 equivalent in the spot market. The consultant’s weekly spot price indicator has risen US$1.90 to US$29.50/lb – up 7% for the week and 15% for the fortnight.

Term uranium markets have also come under price pressure, albeit not quite as steeply as the spot market. TradeTech’s monthly term price indicators remain at US$31.00/lb (mid) and US$34.00/lb (long).

Looking Forward

Canaccord Genuity suggests the level of suspended production could exceed the quantity of physical material entering the spot market over the near term – a prospect reflected in the price surge.

While spot pricing remains well below acceptable returns for the industry – we note producers had already been curtailing production for a number of years due to too-weak prices, before the virus came along – Canaccord believes the prevailing near term uncertainty over supply will likely induce utilities to offer improved long term pricing to sellers to ensure future feed requirements are covered, potentially by 40% in the US by 2022.

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