Weekly Reports | 10:00 AM
Cameco and Kazatomprom create short term U308 spot price volatility, continued price weakness for H2 and Australian producers wrestle with cost rises.
-Trading volumes up at month's end
-More uranium price weakness for H2
-Mine restarts impacted by inflation
By Danielle Ecuyer
Supply concerns prompt spot price volatility
The U308 spot price market ended the month of July with a welcome flurry of activity and price strength as 800,000lbs of transactions were completed, compared to only eight transactions in the preceding July 31 from June 30 period.
Industry consultant TradeTech points to the second quarter earnings call for Cameco as the catalyst. Concerns over supply problems from Kazatomprom elicited the momentum of sales at month's end and a spot price move to US$86.50lb, before buyers retreated.
Concerns were at least temporarily ameliorated at the Kazatomprom August 1 trading update, which didn't disappoint the market. By August 2, the end of last week, the U308 spot price had reversed the month's end gains and finished flat on the week at US$82lb.
Thus far in 2024, the weekly spot price has reversed by -11%, but movements have been characterised by bouts of notable volatility. The 5.5% price moves over the last week of July are viewed by TradeTech as exemplifying the sensitivity of the market conditions.
Year on year the U308 spot price remains up 44% although TradeTech points to the weekly volatility indicator which is down -25% in contrast to the end of July.
Utilities continued to focus on the Russian waivers with import bans scheduled for August 11. Thus far, TradeTech states, Centrus Energy has been given a partial waiver from the Department of Energy.
The industry consultants allude to an uncertain market with some utilities awaiting news on the waiver applications or concentrating on preparing applications.
On July 31, the TradeTech spot price rose US$1.50lb to US$86.50lb from the June 30 value. The Long-Term U308 price increased US$2 to US$82lb over the month of July and the Mid-Term U308 price declined -US$3 to US$90lb.
Last week, the U308 price ended unchanged at US$82/lb.
What the brokers are saying
UBS and TradeTech checked in on the June quarter results from the world's second largest uranium producer, Cameco.
The company's uranium production reached a record 7.1mlbs over 2Q, from 4.4mlbs in Q2 2023, with sales achieved of 6.2mlbs, up 13% on the same quarter in 2023.
UBS spoke with management and highlighted the company remained "bullish" on the uranium outlook.
Demand drivers include the need for decarbonised and secure baseload electricity, and the diversification away from Russian supplies.
Management also pointed to the strength in contracting prices at what is perceived still an early stage of the cycle. The recent weakness in the uranium spot price has been explained through low volumes.
Cameco also highlighted the demand outlook can remain strong even with the aging nuclear generation fleet due to a rising rate of refurbishments and restarts.
On this point TradeTech noted NextEra Energy was evaluating the restarting of a nuclear plant in Iowa, and Michigan committed another US$150m to the Palisades Nuclear Power Plant.
Morgan Stanley referred to the potential restart of the Three Mile Island Plant. The Nuclear Co has planned to develop a few nuclear US plants on sites with pre-existing regulatory approval.
Japan is looking at two life extensions at Kansai Electric Power Company's Ohi 3 and 4 units with Unit 2 of the Tsuraga plant not meeting regulatory conditions.
Concerns around sulphuric acid supplies in Kazakhstan remain in focus for both Cameco and the market generally.
Morgan Stanley's latest uranium update noted the Inkai mine production is down -20% year-on-year. The JV operator of inkai is 40% owned by Cameco and 60% owned by Kazatomprom.
At the August 1 earnings report Kazatomprom stated it has secured sulphuric acid supplies and raised its 2024 guidance by some 6%, as highlighted by UBS, to re-establish inventory levels. The market now awaits the 2025 guidance which Morgan Stanley expects on August 23 to provide improved insights into sulphuric acid potential impacts.
The longer-term drivers for uranium are acknowledged by Morgan Stanley, and the broker believes the market can be "tight" over 2024 and 2025 with supply issues in Niger alongside Kazatomprom's challenges.
But new mine starts, and ongoing Russian waiver approvals are expected to result in a softer second half of 2024 pricing outlook. Morgan Stanley forecasts a U308 price of US$79lb price by the fourth quarter, some -4% below last week's US$82lb price.
"If the world starts doing more nuclear, you're talking 20 years down the road before you really get to consumption", stated Rio Tinto ((RIO)) at its 2Q results.
Morgan Stanley referred to this quote regarding the long build out times for new nuclear generation capacity.
Australian companies in focus
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