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Early Closure of Reactors Pressures Uranium Price

Weekly Reports | Sep 01 2020

This story features LOTUS RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: LOT

The uranium price continues its slide as nuclear plant decommissions in the US and Scotland are planned.

-Exelon Generation decommissions two plants due to falling energy prices
-Weekly spot price declinsd over one percent

-Australian state backs away from lifting ban on uranium mining

By Mark Woodruff

The news that Exelon Generation would decommission its Dresden and Byron units 10 and 20 years earlier, respectively, than expected, was a blow to the industry. The near-term outlook for the uranium market held by many traders, producers, and utilities immediately shifted from a cautiously optimistic outlook to a more bearish view, reports industry consultant TradeTech.

Exelon, which operates the largest fleet of commercial reactors in the US, said its Byron and Dresden Nuclear Generation Stations would face early closure, while additional plants are at risk due to financial pressures in the market. These closures will result in the loss of four reactors “that together supply clean, zero-emissions energy to more than four million homes and businesses in northern Illinois”, quotes TradeTech.

Despite the plants' efficient and reliable operations, Exelon noted that Dresden and Byron face revenue shortfalls totalling “hundreds of millions of dollars” because of declining energy prices and market rules that allow fossil fuel plants to underbid clean resources in the PJM1 capacity auction. PJM1 is a regional transmission organization that coordinates the movement of wholesale electricity in all or parts of 13 US states and the District of Columbia.

This underbidding occurs in the PJM1 capacity auction, explains TradeTech, even though there is broad public support for sustaining and expanding clean energy resources to address the climate crisis.

Early reactor closures have not been confined to the US, as EDF Energy confirmed this week it would close the Hunterston B Nuclear Station in Scotland nearly two years early. The plant is now slated to close by January 2022.

Uranium Pricing

TradeTech’s Weekly Spot Price Indicator fell to $30.75 per pound U3O8. This was a decrease of -$0.40 or -1.3% from last week’s value, and a drop of -$0.05 from the August 27 Daily U3O8 Spot Price Indicator.

The weekly spot price has trended downward since reaching a year-high of $34.25 in May and has since declined over -10%. The average weekly uranium spot price for 2020 is $29.62 per pound U3O8, $3.78 per pound U3O8 above the 2019 average.

Spot market participants were hit with a variety of significant developments last week, including news of the above mentioned decommissions by Exelon and growing rumours that the US Department of Commerce (DoC) and the Russian government may be closer to reaching agreement on an extension of the Russian Suspension Agreement (RSA), which is due to expire at the end of this year.

The lack of a resolution on the RSA has kept US utilities almost completely on the sidelines in terms of purchasing for most of 2020. Many US utilities entered into agreements with Russian-owned entities in recent years, with the expectation that the RSA would expire and that they would be free to purchase Russian-origin material with fewer constraints than those currently imposed by the current RSA.

TradeTech explains the DoC has taken a very firm stance on limiting the amount of Russian imports into the US going forward, which means that several utilities that were counting on Russian material to fill their needs may be forced to buy material elsewhere, or draw down strategic inventories to even lower levels, as they strive to remain competitive.

TradeTech's term price indicators remain at US$36.50/lb (mid) and US$39.00/lb (long).

Company News

ASX-listed Lotus Resources ((LOT)) will soon enter into discussions with major global utilities covering offtake from its Kayelekera Uranium Mine in Malawi, ahead of the mine’s reopening after being placed in care and maintenance for six years.  Kayelekera, formerly owned by Paladin Energy Ltd ((PDN)), produced 10.19 million pounds of uranium in 2009-14 before low uranium market prices led to suspended operations. Lotus holds 65% of the mine, with a current resource of 376.5 million pounds U3O8. The existing infrastructure will allow for a quick, low-capital restart and the company is expecting annual production of 3 million pounds U3O8. (Paladin Energy owns a 13% share in Lotus Resources.)

Country  News

State cabinet ministers in the Australian state of New South Wales backed away from supporting minor political party One Nation’s nuclear power bill in the Upper House last week, which would have lifted an over three decade ban on uranium mining and nuclear power in the state.

The NSW Nationals leader Deputy Premier John Barilaro, who earlier this year said his party would back the One Nation bill, has now been tasked with commissioning more research around uranium mining and will report back to cabinet before any policy decisions are made, reports the Sydney Morning Herald.


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