Weekly Reports | Dec 06 2022
Interest in the uranium spot market is waning, as interest in uranium term markets heats up.
-Interest fading in spot uranium market
-Term markets remain active
-Global demand continues to grow
-Supply doesn’t
By Greg Peel
A total of 12 transactions involving 1.2mlbs U3O8 equivalent were recorded in the uranium spot market in November, industry consultant TradeTech reports, compared to 4.5mlbs in October. The majority of this activity occurred during the first half of the month, before activity stalled as the US Thanksgiving holiday approached, which is not unusual.
TradeTech’s spot price indicator closed out the month at US$49.75/lb, down from US$52.25/lb at end-October.
Sellers re-entered the market following the Thanksgiving weekend, but buyers didn’t. By last Friday, after sellers continued to drop prices, one transaction had been reported for 200,000lbs at US$48.00/lb, down -US2.00/lb week on week.
This price movement runs counter to activity occurring in the term uranium markets. Multiple US and non-US utilities, along with other buyers, are actively engaged in formal and informal discussions with potential suppliers regarding purchases of uranium under multi-year delivery arrangements, TradeTech reports.
One problem is the lack of recent buying by the Sprott Physical Uranium Trust, investment in which by speculators appears to have reached somewhat of a saturation point. The SPUT has accumulated some 59.3mlbs U3O8 since launching in July last year.
The SPUT wasn’t the first kid on the speculative uranium investment block, but since its launch has become the most dominant. The result was the spot uranium market became quickly connected with financial market volatility in general, rather than uranium demand/supply in particular.
This is one reason actual end-users – utilities – have abandoned the spot market in 2022. It has been a very volatile year in financial markets, and to date, a net negative one, scaring investors out of risk assets.
When Climate Change Meets War
The other factor is Russia’s war, which has led to utilities moving to secure future supply from anywhere outside Russia, despite no official sanctions on Russian exports to date. This is likely because the war is already creating an oil & gas supply crisis, sending global electricity price soaring, so take nuclear out of the equation as well and things would only be worse.
Not only have utilities left the spot market behind, they have shifted their supply horizons further out in time, beyond the mid-term and into the longer term, to be more secure ahead of who-knows-what might happen next.
Utilities shied away from the spot market when spot price weakness failed to reflect actual uranium supply/demand when asset prices were falling, and since asset prices have been rebounding, largely on hopes the Fed is nearing the end of its policy tightening cycle, the spot market has not responded with similar strength.
Rumours of the death of the spot market may yet be exaggerated, but before a backdrop of growing global awareness of the need to tackle climate change, and the need to shift into non-fossil fuel energy alternatives to isolate Russia, the action is all in the term markets.
That said, TradeTech’s monthly mid-term price indicator has dropped back by end-November to US$51.00/lb, down from US$53.00/lb. The long term indicator, where more of the action is being recorded, remains at US$53.00/lb.
Growing Demand
The trajectory nevertheless remains to the upside, TradeTech suggests, given the extent of interest suggested by utility enquiries going forward, and by a growing shift towards nuclear energy.
Fukushima was over eleven years ago. Last week the Netherlands said it would consider building two new reactors, and would knock the US out of the World Cup. The UK confirmed its investment in a new plant, and Canada moved forward with its plan to build the country’s first modular reactor plant.
As demand grows, supply remains constrained. TradeTech’s estimated production cost indicator, is at an all-time high since April 2020 introduction of US$56.20/lb. The indicator has not once taken a back step in that time, and is 30% higher year on year, thanks to inflation.
The indicator is considered the cost of incentivising new supply, which is currently not enticing when term price levels are lower.
Uranium companies listed on the ASX:
| ASX CODE | DATE | LAST PRICE | WEEKLY % MOVE | 52WK HIGH | 52WK LOW | P/E | CONSENSUS TARGET | UPSIDE/DOWNSIDE |
|---|---|---|---|---|---|---|---|---|
| AGE | 02/12/2022 | 0.0400 |  – 2.27% |
$0.12 | $0.04 | |||
| BKY | 02/12/2022 | 0.3200 | – 3.03% |
$0.64 | $0.14 | |||
| BMN | 02/12/2022 | 1.8100 | – 3.47% |
$2.49 | $0.15 | |||
| BOE | 02/12/2022 | 2.3900 |  0.41% |
$3.10 | $0.31 | $3.300 | 38.1% |
|
| DYL | 02/12/2022 | 0.7200 | 5.93% |
$1.25 | $0.55 | |||
| ERA | 02/12/2022 | 0.2300 | 9.30% |
$0.42 | $0.16 | |||
| LOT | 02/12/2022 | 0.2100 | 7.50% |
$0.46 | $0.19 | |||
| NXG | 02/12/2022 | 7.0800 | 4.42% |
$8.99 | $0.00 | |||
| PDN | 02/12/2022 | 0.8000 | 2.55% |
$0.97 | $0.53 | -139.6 | $1.100 | 37.5% |
| PEN | 02/12/2022 | 0.1300 | 0.00% | $0.28 | $0.13 | |||
| SLX | 02/12/2022 | 2.6200 | – 6.97% |
$4.14 | $0.99 |
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