By Rudi Filapek-Vandyck

Global dynamics for uranium and uranium producers continue to improve with price momentum turning positive ahead of the Nuclear Energy Institute's Nuclear Fuel Supply Forum in Washington, DC next week. Industry consultant TradeTech also reports US utilities, who largely held off from purchasing anything in December, are noticeably more present in January, a fact that hasn't gone unnoticed in the camp of uranium sellers either.

TradeTech reports by the end of the week a gap had opened up between buyers and sellers in the uranium spot market. Sellers had been gradually increasing their price expectations throughout the week while buyers turned more cautious, unwilling to overpay. Because of this gap widening, overall activity for the week was a lot busier at the beginning of the week but virtually non-existent by Friday.

All-in-all, TradeTech's spot price indicator jumped by US$0.75 to end the week at US$36.15/lb. This compares with US$35.50 on the final day of 2014.

TradeTech suggests several utilities are considering purchases after postponing entry into the market in December, which should bode well for the remainder of the month, possibly for the remainder of Q1.

The prior week saw two US producers announcing a "merger" to create what shall become the largest producer of uranium in the USA. If the current proposal receives approval from shareholders in respective companies, Energy Fuels and Uranerz will merge on 45/55% ownership terms.

Prior to the merger announcement, the spot uranium market went "exceptionally quiet" with total transaction volume for the month shrinking to no more than 2.9m pounds of U3O8 equivalent. TradeTech suggests this was a direct response to a rather frenzied November month when transaction volume surged to 5.7m pounds U3O8 equivalent and the spot price reached as high as US$44/lb. This remains the highest price point to date for this cycle.

TradeTech's mid-term and longer-term price indicators remain unchanged at US$39/lb and US$50/lb respectively. Both are unchanged from December 31.

In Australia, major producer Paladin Energy ((PDN)) was yesterday forced to lower its production guidance for the current financial year. Most stockbroking analysts, it appears, are prepared to stick with a positive view on the basis of an anticipated rise in the price of uranium over the coming 12-18 months.

Technical limitations

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By Greg Peel

Uranium end-users have now largely satisfied any outstanding 2014 need for uranium purchases and have shifted their focus to deliveries in the first half of 2015, industry consultant TradeTech reports. As supplies are less restricted moving into next year compared to right now, sellers are prepared to accept slightly lower prices in exchange for a more flexible delivery window.

As a result, spot uranium prices slipped over the course of last week, which saw seven transactions completed totalling 800,000lbs of U3O8 equivalent. TradeTech’s spot price indicator has fallen US60c to US$37.25/lb. Utilities were largely absent from the market last week, leaving traders and financial entities, and producers, to provide the volume.

Two transactions were reported in the term uranium market last week, involving less than 1mlbs of U3O8 equivalent. A number of utilities are evaluating potential mid and long term purchases but are closely monitoring price movements, mindful of recent price volatility. Sudden jumps in price have encouraged utilities to postpone their entry into the market.

TradeTech’s term uranium prices remain unchanged at US$42.00/lb (mid) and US$50.00/lb (long).

In other news, the Chinese government is expected to resume approvals to build nuclear plants in coastal regions, having suspended such approvals in the wake of the Fukushima disaster. Construction of the plants would be carried out under “strict safety protocols”.

China is also in the process of seeking a civilian nuclear cooperation agreement with India. Meanwhile, India has signed an agreement with Russia’s Rosatom for the state-owned company to build 12 nuclear reactors in India over a 20-year period.
 

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By Greg Peel

Last week this report noted, with regard the term uranium market, that “producers, who in response to ever lower post-Fukushima spot prices had been forced to curtail production and shelve expansion plans, have been shying away from longer term delivery contracts at fixed prices. "Having suffered long and hard, producers would like to get a bit back thank you very much”.

The uranium spot market is not where uranium producers and end-users meet to ensure nuclear utilities are sufficiently stocked to ensure power production into the future. Typically it is where producers offload smaller amounts, or even buy in smaller amounts to make up for contract obligation shortfalls. Utilities will also use the spot market for smaller amounts, or to take advantage of brief price opportunities, but when it comes to ensuring uranium supply security, they prefer to sign longer term contracts which lock in delivery over a period of years.

When the spot uranium price began to rise from its long term doldrums last decade, accelerating sharply as speculators piled in on expectation of a new green energy world coinciding with the emergence of China and India, longer standing producers found themselves stuck delivering uranium on fixed price contracts signed some time before. They were missing out on the spoils, while newcomers to the market elected to sell uranium at spot-based pricing and thus cleaned up. The spot bubble soon burst, but it was Fukushima that really knocked the wind out of uranium’s sails. Japan shut down its reactors and sat on its extensive uranium stockpiles.

Utilities, which typically carry such stockpiles to ensure supply security up to years ahead, had no immediate need to buy, while producers, who suddenly found their spot pricing models had turned against them, were desperate to sell. The spot uranium price collapsed gradually to its depths earlier this year. But with news of pending Japanese reactors restarts, well over three years after Fukushima, the spot uranium market is back in action.

Utilities are back looking to buy. While they have been happy recently to try and grab some cheap material at spot, if the price runs away they back off again. Those producers who have managed to weather the post-Fukushima storm are keen to sell to rebuild their balance sheets, but as soon as they see the utilities coming they back off in the hope of achieving a better price. After a very quiet year, the term market is also hotting up again. Typically, term contracts are signed at fixed prices.

Obviously if the uranium price is moving up, utilities prefer fixed prices. But producers, who have suffered three long hard years, don’t want to blow the opportunity of riding a potential spot price rally. Thus it has transpired the two parties have begun to meet in the middle. The compromise is, as industry consultant TradeTech notes, a new model of hybrid contract pricing, mixing fixed price and floating spot price components.

Four transactions were concluded in the uranium term market last week, TradeTech reports, totalling over 2mlbs U3O8 equivalent for delivery between 2016 and 2024. Several utilities are known to be keen to enter the market before year-end, and are now shying away from what has become a highly volatile spot market, in which speculators are again involved. Mid and longer term delivery contracts are being sought.

Thus after a tumultuous November, the uranium spot market fell relatively quiet in the first week of December. Buyers and sellers both backed off in either direction. Five transactions were concluded, TradeTech reports, totalling 700,000lbs of U3O8 equivalent.

TradeTech’s weekly spot price indicator is down US$1.15 from the week before, at US$37.85/lb. The action is in the term market, and last week Trade Tech lifted its term price indicators accordingly. They remain unchanged this week at US$42.00/lb (mid) and US$50.00/lb (long).

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By Greg Peel

The only month more volatile for the spot uranium price than November past since prices began being tracked in 1996 was that of March, 2011 – the month in which a tsunami struck Japan and caused a nuclear accident at the Fukushima plant, leading to the immediate shutdown of all Japan’s reactors. The price surge from post-Fukushima lows which accelerated before peaking in November and falling back sharply was triggered by the announcement of approval for the first reactor restarts in Japan since the accident.

Several end-users entered the market in November, notes industry consultant TradeTech, in some cases due to end of year budgets but in other cases simply in an attempt to secure what possibly would prove the last of post-Fukushima “cheap” supply. The end-users found themselves battling it out with investors who returned to the market after a long hiatus in the belief a price rally was finally in swing. Despite the increase in volume witnessed in the month, spot uranium remains a thinly traded market hence when sellers initially backed off to make the most out of fresh demand, the spot price flew upward.

Until, that is, the sellers themselves were surprised by the strength of the rally, and subsequently barrelled in once more to force the price to quickly retreat. TradeTech’s spot price indicator hit a 26-month high of US$44.00/lb on November 14, only to be slapped back down to US$38.00/lb by November 21. Last week saw prices oscillate around the US$40 mark before ending the week, and the month, at US$39.00/lb, up US$1.00 from the week before and 25% over 16 weeks.

Volumes in November jumped to 5.7mlbs of U3O8 equivalent, up from 3.1mlbs in October. Traders, financial entities, producers and investors all acted as buyers in the month, TradeTech notes.

Five transactions were also included in the term uranium market last month, evoking TradeTech to once again lift its term price indicators. The consultant’s mid-term indicator has been lifted US$3.25 to US$42.00/lb and its long term indicator has been lifted US$5.00 to US$50.00/lb. Several utilities are currently evaluating mid and long term uranium purchases with several more expected to enter the market before year-end.

TradeTech notes nevertheless that producers, who in response to ever lower post-Fukushima spot prices had been forced to curtail production and shelve expansion plans, have been shying away from longer term delivery contracts at fixed prices. Having suffered long and hard, producers would like to get a bit back thank you very much.
 

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By Greg Peel

Last Friday Macquarie published a lengthy review of the spot uranium market, citing five reasons why the analysts expected the strong rally on low volumes must peak out ahead of a sharp price consolidation. Macquarie was on the money if not unfortunate, given by the time the report was being published spot uranium was on track to a 13% price plunge over the week. Industry consultant TradeTech’s spot price indicator finished the week down 13%, or US$6.00, to US$38.00/lb.

Buyers decided not to chase the market any further last week, TradeTech attests, hurrying sellers into lowering their offers. Demand finally met supply at week’s end, resulting in seven transactions being completed for a total of 1.8mlbs of U3O8 equivalent. Utilities joined in with traders and speculators, and even producers were on the buy-side last week.

While the spot uranium market is notoriously volatile, the week’s 13% fall is the biggest since the Fukushima nuclear accident in 2011. The spot price is still up 21.6% over four months, nonetheless, and up 57% from the June low. There was one transaction reported in the term market last week, as a utility signed with a supplier for 2mlbs U3O8, but TradeTech’s term price indicators are unchanged at US$38.75/lb (mid) and US$45.00/lb (long).

Macquarie suggested on Friday spot uranium had run too far, too fast, and without any real improvement in fundamentals. Market rebalancing will continue to be a longer term process, the analysts believe. In recent weeks a relative lack of spot availability, largely due to operational issues at various mines, has met a surge in trader interest, largely due to the Japanese reactor restart announcement. There also remain lingering concerns over sanctions against Russia potentially being increased to include enriched uranium.

Macquarie outlined five reasons why it was expecting a price correction: (1) the spot price rally has not been matched in a coincident rally in the price of enriched uranium; (2) global production has declined year to date; (3) utility buying has been driven more by the desire to pick up cheap material than by actual necessity; (4) Japanese reactor restarts are good for market sentiment but there will be little need for Japanese utilities to add to existing stockpiles of material in the near term; and (5) Chinese imports of uranium have slowed 2% year to date due to substantial stockpiling at lower prices.
 

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By Greg Peel

Having leapt a remarkable 16% the week before, the uranium spot price could have been excused for a bit of a pullback last week as buyers threw their arms up and/or sellers jumped in to reap the spoils. But this was not the case. Industry consultant TradeTech’s spot price indicator ended the week up another US$2.00, at US$44.00/lb.

The long-awaited formal green light for the restart of two of Japan’s idled reactors has clearly galvanised the market and put the commodity “in play”. While the sharp rally in recent weeks has largely been exacerbated by thin trading and low volumes, as some urgency in demand from utilities has begun to emerge but sellers have backed off to maximise their opportunity, last week saw eleven transactions conducted in the spot market totalling 1.3mlbs, TradeTech reports.

Utilities were among the buyers but uranium traders dominated the week’s activity, along with speculators. Prices did indeed begin to dip mid-week but this only spurred on the buy-side, sending the spot price to another weekly gain. Near-term supplies are beginning to thin as the year draws to a close, hence more buying interest is expected in coming weeks. Sellers are in no rush to lower prices.

There were also two transactions reported in the uranium term contract market last week. Trade Tech’s term price indicators nevertheless remain unchanged at US$38.75/lb (mid) and US$45.00/lb (long).

A rapidly rising spot uranium price should be a great source of relief for Australian-listed producer Paladin Energy ((PDN)), and indeed Paladin’s share price rallied around 40% last week, but operationally the company is not without its issues.

Late last week Paladin posted a September quarter report which highlighted a poor operational performance at its flagship Langer Heinrich mine in Namibia due to maintenance shutdowns both planned and unplanned. Despite higher uranium prices, the company continued to burn more cash in the quarter.

With cash flow still negative, the urgent issue for Paladin is the company’s level of gearing, and specifically a convertible note issue due to mature in less than twelve months. Paladin will be unable to repay the debt and thus will need to come up with another solution fairly swiftly. An announcement is expected before year-end. Brokers are not ruling out any potential option from debt restructuring to another equity raising or the sale of another stake in its Langer Heinrich mine, or some combination of any or all of the above.

FNArena’s database of major brokers shows only one Buy or equivalent rating on Paladin at present, from Morgans, against four Holds and one Sell.
 

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By Greg Peel

For a few weeks now, nuclear industry consultant TradeTech has been anticipating that demand from utilities – the true end-users of uranium – would rise before year-end. Utilities had re-entered the spot market back in September as prices started to sneak up, until a 10% surge in one week led to a back-down as sellers raised their offer prices. Between then and now, intermediaries and speculators have dominated the demand-side, ensuring any pullback utilities may have been hoping for has not eventuated. With year-end now in sight, last week those utilities blinked.

One is reminded of Olympic sprint cycling, in which competitors slowing circle the velodrome feigning disinterest until one suddenly makes a break for the line and the other must follow. When at least one utility moved, its peers, and intermediaries, and speculators, ploughed in as well. Less than 900,000lbs of U3O8 changed hands over the course of the week, TradeTech reports, but at successively higher daily prices. Urgency became an issue, with at least one buyer seeking material for delivery as early as December first.

When the dust settled at week’s end, TradeTech’s spot price indicator had risen US$5.75, or a whopping 15.8%, to US$42.00/lb. It’s the second largest weekly jump in percentage terms since 1996, when the consultant began keeping score.

The scene had been set for a burst of activity. The week before, local government approval was received for Japan’s first two reactor restarts, three years and ten months after the Fukushima disaster. Interest from uranium traders and financial entities had been quietly building. Activity in the term contract market had been picking up, to the point Trade Tech raised its mid-term price indicator another dollar. The consultant had forewarned of increased term interest spilling into the spot market.

In July, the uranium spot price hit its post-Fukushima nadir at US$28.10/lb. It has now bounced 49% in less than four months. If utilities are now scrambling to secure supply before year-end, there may be further to run in the short term, but at some point prices will rise to the point idled capacity – with Paladin Energy’s ((PDN)) Kayekeleera mine in Malawi being just one example – will be brought back on line, one presumes, balancing supply against rekindled demand.

TradeTech’s term price indicators remain unchanged at US$38.75/lb (mid) and US$45.00/lb (long).

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By Greg Peel

On October 28, the municipal assembly of Satsumasendai in the Kagoshima prefecture of Japan voted to approve the restart of Kyushu Electric’s Sendai nuclear plants one and two, three years and seven months after all of Japan’s reactors were idled in the wake of the Fukushima disaster. The Mayor of Kagoshima also provided approval. Japan is back in the nuclear game.

It is interesting to note that three days later, the Bank of Japan announced an increase in its annual QE monetary stimulus to 80 trillion yen from a previous 60-70 trillion. The announcement sent the yen plunging, which is the intended consequence in an attempt to boost Japan’s exports economy. But Japan has failed to lift its trade balance out of deficit in the post-Fukushima years despite massive stimulus, due to the offsetting significant cost of LNG imports. Japan has been forced to use gas to fire electricity production while its many reactors lay idle. Now that reactor restarts are due from early next year, Japan finally has the opportunity to wind back its trade deficit.

Japan will nevertheless not return to the same level of nuclear energy capacity it once enjoyed. The new Japanese Economy, Trade & Industry minister suggested last week nuclear generation will return to account for less than 30% of Japan’s electricity needs, down from 60% before the tsunami tragedy.

Anticipation of restart approval stirred up uranium market intermediaries last month, who this time last year were desperately attempting to offload inventories at any price when restarts looked increasingly remote. Australia’s Macquarie Group ((MQG)) has now joined the fray as a uranium trader, having recently bought Deutsche Bank’s trading book and inventories. Intermediaries accounted for around 90% of the volume traded in October, on both buy and sell sides, leading to a deal of spot market volatility. Industry consultant TradeTech’s spot price indicator rose as high as US$36.75/lb last week before settling back to close the week, and the month, at US$36.25/lb, up US50c from the week before and US95c up for the month.

Volumes were lower in October than September, with 3.1mlbs of U3O8 equivalent changing hands over 31 transactions, compared to 4.1mlbs last month over 28 transactions. Utilities – the real end-users – have been nibbling away lately but are expected to step up purchases as we approach year end. 

Two transactions were concluded in the term market in October, involving around 1mlbs for mid-term delivery. TradeTech’s mid-term price indicator has risen to US$38.75/lb from last month’s US$37.75/lb. The consultant’s long-term price indicator remains unchanged at US$45.00/lb.
 

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By Greg Peel

Australian investment bank Macquarie Group ((MQG)) has revealed a further expansion of its energy trading book through the acquisition of Deutsche Bank’s uranium business. The deal was actually completed a couple of months ago for an undisclosed amount, although industry consultant TradeTech notes Deutsche’s long-term trading contracts and stockpiles of uranium concentrate were valued at around US$200m at year-end 2013.

Deutsche announced last December it was exiting commodities trading – a response to tighter US Federal Reserve rules regarding bank trading and warehousing of physical commodities. The departures of both Deutsche and Goldman Sachs as market intermediaries early this year left a large hole in the market and led to greater price volatility, given the lack of traders prepared to offer two-way pricing spreads for size. The exit has been offered as one of the contributing factors in the slide in the uranium price in the first half of 2014.

That an Australian investment bank should take over the reins as a global uranium intermediary makes logical sense given the fact Macquarie boasts an extensive global presence and Australia is a leading producer of uranium. That said, this month’s September quarter production reports revealed BHP Billiton ((BHP)) produced 11% less uranium than in the same quarter last year at its Olympic Dam mine in South Australia while Rio Tinto ((RIO)) slowed its Rossing production in Namibia by 35%, offset by the restart of processing at two-thirds owned Energy Resources of Australia’s ((ERA)) Ranger mine in the Northern Territory, which had been closed in December last year due to a leach tank failure.

News from last week’s annual International Uranium Fuel Seminar in Atlanta is that Japanese local municipalities are expected to vote on the restarts of Kyushu Power’s Sendai one and two reactors in December and if approved, restarts should occur by April.

We won’t hold our breath.

The spot uranium price continued its rally last week after stalling the week before, TradeTech reports. A total of five transactions were concluded representing around 500,000lbs of U3O8 equivalent. Utilities had emerged to helped turn uranium prices around a couple of months ago but they quickly retreated to the sidelines when the intermediaries and speculators moved in to send prices rising in leaps and bounds. It was worth a try, but having previously been desperate to offload material at any price, the sell-side, including producers and intermediaries, have now mostly cleared the decks.

Sensing they were not going to thus see a pullback in the rebound, utilities returned to the market last week to provide further upside influence. TradeTech’s spot price indicator finished the week up US50c to US$36.00/lb.

TradeTech’s term price indicators remain unchanged at US$37.75/lb (mid) and US$45.00/lb (long).
 

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