By Greg Peel

Among the five issues with regard Japanese reactor restarts summarised by uranium market analysts at Citi, outlined in FNArena’s previous Uranium Week, one is that of “approval from local authorities”. But as last week’s debate among relevant parties in Japan revealed, the problem is not specifically one of “local” approval.

The first two Japanese reactors to have received the green light from the safety regulator to date are Kyushu Electric’s Sendai units one and two, located at the town of Satsumasendai in the Kagoshima prefecture, 600 miles southwest of Tokyo. While one might assume community objection to restarting the reactors arises from the township in question, in fact the benefits provided to the host town are sufficient to outweigh fears of reactor accidents. The Mayor of Satsumasendai is all for the restarts.

The governor of Kagoshima is also pro-restart, but the objection stumbling block has arisen from other townships within the prefecture which do not directly enjoy the benefits of reactor location but would indeed suffer as a result of any accident that may occur. Radiation clouds are not known to obediently hang over the township from which they emanate. Thus the process of government meetings with affected local residents continues, with fifth and final meeting regarding the Sendai reactors to be held today.

Local politicians suggest approval is unlikely before December. Nonetheless, Citi’s analysts had already pencilled in the March quarter 2015.

In other news last week, a new pro-renewable energy policy became law in France and immediately the French president rejected the contract renewal application of the pro-nuclear Electricite de France CEO. The new act is aimed at reducing France’s dependence on nuclear power to 50% from a current 75%.

Volumes in the spot uranium market fell to less than 500,000/lbs of U3O8 equivalent over five transactions last week, industry consultant TradeTech reports, with buyers and sellers equally matched. There was little variation in pricing during the week and thus TradeTech’s weekly spot price indicator remains unchanged at US$35.50/lb.

Speculators and intermediaries continue to dominate the demand side at present, although some end-user demand is expected to emerge in coming weeks, the consultant reports.

TradeTech’s term price indicators remain unchanged at US$37.775/lb (mid) and US$45.00/lb (long).
 

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By Greg Peel

With the spot uranium price having now recovered to its highest level in over a year, and term contract prices having begun to edge up once more, the speculators have returned to the market. Last week’s market highlight was news a financial entity has acquired funds that would allow it to purchase up to US$200m of uranium inventory.

This news sent the spot price upward once more earlier in the week and, as has been the case in recent weeks, the rally tempted the sellers. The indicative spot price settled back from its mid-week high but still finished up US20c from the previous week’s close, at US$35.50/lb, UBS reports.

The other news highlight for the week was that of workers at Cameco’s McArthur River mine in Canada voting to accept a new collective agreement, suggesting production can resume.

Meanwhile, analysts at Citi have been looking at the vexing question of just when the first Japanese reactors might restart, following their 2011 closure in the wake of the Fukushima disaster. For so long has speculation been rife over possible pending restarts with no joy, the market had become weary of worrying about it. Instead the focus has been on supply curtailments due to lower uranium prices, and potential shorter term supply risks such as that of sanctions against Russia within the nuclear space, which are yet to materialise.

But for over two years now, the market has been looking forward to the first Japanese reactor restart, which would imply a return towards demand-supply balance in the global uranium industry. The then Japanese government established the Nuclear Regulation Authority in September 2012, tasked with the role of compliance management of the country’s reactors under new safety guidelines. The current government then won office in late 2012, bringing to power a party far more nuclear-supportive than the previous incumbent.

It seemed then only to be a matter of time, but it was not until July 2013 that new safety standards were fully established. Then just when it appeared two reactors might finally be given the green light this year, a new, stricter set of standards were hastily drawn up when local residents complained of insufficient reactor protection against natural disasters.

The bottom line at present is that no reactor has been restarted. Ten nuclear operators have filed for compliance inspections for 19 reactors and 146 inspection meetings have been held, Citi notes, to date resulting in only two reactors have had inspection reports compiled, being Sendai numbers one and two.

Citi suggests the compliance inspections have been protracted because the NRA is covering uncharted territory and because there have been differences of opinion between the NRA and operators over active faults (of the earthquake variety) and seismic vibrations. Indeed, the new, tougher set of regulations were hastily drawn up when one local mayor, at the behest of his constituents, knocked back restarts in his district over the question of whether the reactors were earthquake proof, among other possible terrors.

Citi thus summarises the issues influencing the timing of restarts into five factors: active faults; seismic vibration standards; type of reactor; age of reactor; and approval from local authorities. That said, Citi remains of the view Japan’s nuclear plants will gradually return to operation given the government’s pro-nuclear policy and recent hurry-up attempts regarding restarts, and the fact Sendai 1 and 2 are supposedly cleared to go.

Citi also believes compliance inspections will be sped up moving forward, as NRA inspectors deepen their experience and add to their roster of nuclear specialists. Sendai’s restarts would provide greater clarity on necessary processes.

The broker thus forecasts that restarts at Sendai in the March quarter 2015 will get the restart ball rolling, with five further reactors given the green light to lift nuclear capacity back to 17.3% of Japanese power supply by 2016.
 

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By Greg Peel

The month of September was all about a confluence of factors with the potential to impact on global uranium supply, spurring utilities into more urgent purchases and speculators into taking a punt on a post-Fukushima bottom having now been finally established. The risk of Russian sanctions, the industrial dispute at Cameco’s biggest mine and the legal battle between US converter ConverDyn and the US Department of Energy over government sales of material were all influential in sparking a jump in industry consultant TradeTech’s spot uranium price indicator to US$36.50/lb during September, its highest level since July 2013.

Earlier in the month the sell-side of the market, including producers and intermediaries, had stood back to let demand drive prices but by late in the month the sellers returned, given the plan worked surprisingly well. TradeTech’s spot price indicator closed at US$35.30/lb at end-September, up US$3.30 from end-August. The consultant reports 28 transactions totalling 4.1mlbs of U3O8 equivalent being concluded in September, slightly ahead of August’s 4.0mlbs.

The spot price remained unchanged up to last Friday as we entered the new month. The week to Friday saw six transactions totalling just shy of 700,000lbs of U3O8 equivalent, TradeTech reports, with utilities in the mix but intermediaries doing most of the buying.

Not only has demand for near term uranium supply been strong this past month, but urgency has spilled over into the term contract market. Upward pressure on the spot price is being reflected in mid and long term delivery prices. TradeTech has now lifted its mid-term indicative price to US$37.75/lb from US$34.50/lb and its long-term price to US$45.00/lb from US$44.00/lb.

The news highlight of the week was an announcement the US Department of Energy would provide up to US$12bn in loan guarantees for “advanced nuclear energy projects” as part of the Obama administration’s “all of the above” energy policy focused on reducing carbon emissions. The loans are intended to help finance the commercialisation of small modular reactors as well as enrichment, conversion and fuel fabrication projects.

The US news follows on from news Britain had agreed terms with the EU to secure billions of pounds of public funding for the new Hinkley Point nuclear facility. This breakthrough is a big boost for the UK government’s contract with French utility EDF, TradeTech notes, which would provide a template for the next wave of state-backed nuclear plants across Europe.

Meanwhile EU member Sweden is running into political difficulty in the other direction. The previous centre-right government has now been replaced with a coalition between the Social Democrats and the Greens. The county’s original nuclear reactors are now starting to reach the end of their planned 40-year lives and while the Social Democrats are supportive of the previous government’s intention to replace the reactors, the Greens simply want to see them shut down.

Nuclear power provides 40% of Sweden’s electricity supply.
 

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By Greg Peel

The dam broke on pent up short term uranium demand the week before last, following escalating anxiousness with regard various exogenous factors including the legal challenge to US government uranium sales, the potential for increased sanctions against Russia, the strike in Canada, and the looming potential for the first Japanese reactor restarts. Having grafted its way incrementally off the July low, the spot uranium price suddenly jumped 10% on a wave of transactions.

The action clearly caught the attention of a few half-asleep sellers, who last week jumped on the opportunity of improved pricing to offload material. Industry consultant TradeTech reports transactions totalling 600,000lbs of U3O8 equivalent, compared to 1.8mlbs the week before. TradeTech’s spot price indicator fell US90c to US$35.60/lb, but market participants agree momentum remains to the upside, with utilities, intermediaries and speculators all in on the buy-side last week.

In news last week, China’s National Development & Reform Commission announced it planned to start four 1000MW nuclear plant projects in coastal areas. Britain finalised terms with Brussels to secure approval for billions of pounds of public funding for the new nuclear power plant at Hinkley Point.

Meanwhile, as the uranium market trembles with regard the possibility of increased Russian sanctions, South Africa has signed up Rosatom, Russia’s state-owned nuclear entity, to build reactors in the country. China has offered to build two new reactors in Romania and Saudi Arabia, of all places, has decided to invest funds in the development of both solar and nuclear power alternatives in the kingdom over the next 20 years.

The 2014 World Resources Production & Demand “Red Book”, released last week, noted 437 reactors were in operation globally in 2013, consuming 154mlbls of U3O8 equivalent, down 4% from 2012. World power generation capacity is estimated last year as 372GW.

The Red Book provides estimates for electricity demand in 2035, which from 2013 are 400-678GW on a low case-high case spread. These numbers are down 26% on the low case and 9% on the high case from last estimated in 2011. However despite excess global inventory generated by the Japanese reactor shutdowns, the numbers imply uranium demand will grow to 2035 to meet these estimates.

CIMB notes that were sanctions against Russia to extend to nuclear fuels, around 11% of global seaborne uranium supply would be removed. The broker expects the spot price to remains steady around the current level through the December quarter but to improve over the following 12-18 months on a fundamental basis.

TradeTech’s uranium term price indicators remain unchanged last week at US$34.50/lb (mid) and US$44.00/lb (long).

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By Greg Peel

When industry consultant TradeTech's weekly uranium spot price indicator hit a decade low of US$28.10/lb back in July, the supply side was desperate. Intermediaries holding inventories and producers burning cash lined up to hit any bid on a "have to sell" basis. Meanwhile, there was as yet no real indication of when, if ever, Japan's reactors might restart and utilities carrying comfortable stockpiles of material were in no hurry to buy.

Producers across the globe began to shut down or mothball mines and any plans for new mines went straight to the bottom drawer.

Two months later, the view looks different in the short term. While Japan may finally restart the first of its reactors early next year, any timetable for full nuclear power restoration, if that is to occur at all, would be measured in years rather than months. The supply-side, on the other hand, has seen a confluence of potentially disruptive events which has thrown the market into uncertainty.

The legal challenge in the US rages on, hence it is yet to be determined whether the Department of Energy can continue to offload uranium stockpiles into the market or not. While negotiations have progressed in Canada at the world's biggest producing mine and processing plant, between owner Cameco and striking workers, it is still unclear just how long production might remain offline. And while a tenuous ceasefire appears to be holding for now in Ukraine, market participants remain fearful any further step-up in sanctions against Russia could fundamentally impact on the uranium industry.

As these stories have built over the past two months, the spot uranium price has ticked quietly higher. No longer able to safely consider supply as more than sufficient to satisfy shorter term demand, utilities had begun to put out the feelers for supply contracts. On a net basis, intermediaries who were previously stuck with product they needed to get rid of have now swung back the other way in anticipation of more anxious demand, while producers, sensing the pendulum may finally be swinging back their way, have backed off their offer prices.

Weekly increases in price since that US$28.10 low had been incremental so far, but last week the dam broke. TradeTech reports seventeen transactions totalling 1.8mlbs of U3O8 were conducted during the week – a big jump with respect to recent paltry average weekly volumes. Seeing the buyers coming over the hill, the sellers retreated, such that every consecutive transaction traded at a higher price as the week progressed. By Friday, TradeTech's spot price indicator had jumped no less than 10.6%, rising US$3.50 to US$36.50/lb.

The rush of trading was not restricted to the spot market, with the mid-term delivery market seeing several transactions completed as well. TradeTech has not yet seen fit to raise its term price indicators, but given a spot price of US$36.50/lb now exceeds the consultant's mid-term indicator of US$34.50/lb an adjustment could be pending.

One must consider, however, that those factors impacting on the uncertainty of the supply side, and thus playing on the fears of the demand-side, could prove fleeting. The challenge against the US DoE may fail. Some sort of resolution may be reached between Ukraine and Russia, causing sanctions to be lifted. Cameco may resolve its issue with workers and restart its mine. Or any or all of the above.

And further legal challenges by local residents in those Japanese prefectures where reactors have been given safety approval could yet hold up any restarts indefinitely.

The bottom line is that while a 10% jump in the uranium price suggests things are finally on the move again, we cannot confidently call a cyclical end to post-Fukushima uranium price weakness.

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By Greg Peel

Nuclear energy market participants gathered in London last week for the annual World Nuclear Association symposium. In the past the symposium has led to a week of little trade in markets, given everyone is elsewhere, yet five transactions totalling 500,000lbs of U3O8 equivalent were conducted last week.

Industry consultant TradeTech’s spot price indicator rose US75c by week’s end, to US$33.00/lb, for yet another weekly gain. Utilities and intermediaries made up the buy-side.

The symposium is also typically a forum for market participants to talk up the market between each other over complimentary refreshments, although recent years have witnessed an understandingly more sombre tone. Last week’s increase in uranium price is not a reflection of optimism but a reflection of uncertainty.

Concern continued during the week with regard Cameco’s labour dispute and subsequent lock-out of workers from its McArthur River mine and Key Lake Mill processing plant. As the single biggest producing mine in the world at present, McArthur represents a not insignificant supply swing factor were the dispute to continue. However late on Friday Cameco announced it had reached a tentative agreement with the unions, suggesting production could return to normal once a final agreement is reached.

A wider cloud nevertheless hangs over the market with respect sanctions against Russia. The nuclear industry has been nervous ever since the first round of sanctions were imposed due to Russia’s Ukrainian incursions, and nervousness has only grown as new rounds of stiffer sanctions have been announced. The latest round stepped up restrictions in the energy industry but as yet nuclear considerations have been absent. This has not stopped the industry being anxious about existing commitments with Russia, and there is now a reluctance to enter into any new contracts.

Meanwhile the Japanese regulator has now given safety clearance to Kyushu Electric Power’s Sendai units one and two. The Sendai units were originally given clearance until local residents expressed their concern about risks in the event of some major catastrophe, such as an earthquake, at which point the regulator went back to the drawing board to create even more stringent safety requirements.

Presumably Sendai is now safe come hell or high water, and the local mayor and governor are in favour of restart. This means restarts could occur early in 2015 but Kyushu Electric still has some paperwork to fill out and, more importantly, the residents still need to be convinced.

While the eventual restart of the first Japanese reactor should be a catalyst for increased uranium demand, recent price rises more reflect aforementioned uncertainty than they do the background global demand-supply equation. Thus were Cameco’s mine to return to normal and resolution to be reached in Ukraine, reversing sanctions, it is quite possible the spot uranium price will again fall before it can meaningfully rise.

There were no term transactions completed last week and TradeTech’s term price indicators remain unchanged at US$34.50/lb (mid) and US$44.00/lb (long).

We’ll end with the following graph, which provides a little bit of insight into future demand.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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By Greg Peel

Try this quick quiz: Which was the best performing of all metals/minerals in price terms in August? No you’re wrong, it was uranium. Indeed, spot uranium is up over 13% since the end of June when the price bottomed out at US$28/lb. It was up again last week, by US25c to US$32.25/lb, according to industry consultant TradeTech’s weekly indicator. Five transactions totalling 500,000 of U3O8 equivalent were concluded.

But as Macquarie notes, uranium is not the only energy-related commodity to have enjoyed a price rally since end-June. European natural gas has also run up, and European thermal coal has not only run up but established a premium over other thermal coal benchmarks. This would tend to suggest uranium’s price rise is not about increasing demand or supply curtailments, but about sanctions imposed on Russia and the potential ramifications thereof.

Russia only accounted for only 5% of global uranium mine output in 2013 but it provided the US with 20% of its enriched uranium supply and the EU with 36%. Russian sanctions or retaliations had not yet impacted on uranium but last week the Australian government moved to curtail uranium exports to Russia until further notice. Australia is the world’s third biggest producer of uranium behind Kazakhstan and Canada and mostly exports to Japan (when required), the US and Europe, but does send smaller shipments to Russia.

Western leaders met in Wales on the weekend to discuss, among other geopolitical matters, possible sanction step-ups against Russia should the supposed ceasefire in Ukraine not hold. So far it’s not looking good. Hence it is possible the nuclear energy industry might be hit in the next round.

Initial sanction risk back in June coincided with a uranium market in which speculators were set to the short side, as producers desperately attempted to offload product to alleviate cash burn. A short-covering scramble thus ensued, which also forced a bit of a hurry-up call for utilities across the globe which had been holding off on re-establishing their stockpiles.

To compound matters, last week Canada’s Cameco closed down the world’s largest uranium mine due to a labour dispute. The battle with workers is ongoing, and given Cameco can cover up to a year’s worth of contractual supply obligations through inventories, Macquarie notes the dispute could be quite protracted.

This may just serve to keep the wolf from the door of the 50% of global uranium production which is theoretically running at a loss at current pricing. While last year saw a series of expansion plans being postponed and less economic mines being idled, such as Paladin Energy’s ((PDN)) Kayekeleera mine in Malawi, that supply constraint momentum has not continued into 2014.

Thus Macquarie does not believe a substantial uranium price recovery is being signalled by the recent price spike. That spike has been event-driven and not representative of anything structural. On the demand side, a recent rekindling of utility buying interest is mostly opportunistic at lower prices, Macquarie believes, and not suggestive of a major restocking phase. Global inventories remain “extremely” large, Macquarie warns.

Macquarie does see limited downside to uranium prices nevertheless, but expects the market will remain in surplus through the foreseeable future. What happens with regard Russia in the short term should not have much impact on the long.

TradeTech’s uranium term prices remain unchanged at US$34.50/lb (mid) and US$44.00/lb (long).
 

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By Greg Peel

Industry consultant TradeTech’s spot uranium price indicator rose again last week, by another US75c to US$32.00/lb. However while consecutive weeks of price rises are encouraging, price volatility is reflecting a lack of liquidity amidst a deal of market uncertainty.

As the week closed out, the threat of further Western sanctions against Russia intensified as tensions in Ukraine heightened. Sanctions to date have not included any restriction on global uranium trade, but the market assumes that if trade sanctions continue to be upgraded, uranium must soon come into the mix.

The battle between US uranium producers and the US Department of Energy continues to rage, as a result of the DOE’s recent decision to release uranium inventories into a fragile market. Last week the industry body representing US producers lobbied the DOE to be included in the transfer process and for a limit on further sales and/or transfers.

And just to add the demand-supply uncertainty mix, Canadian uranium giant Cameco last week issued a lockout notice against workers at its McArthur River mine and Key Lake mill due to strikes at both sites.

The result of all of the above is uncertainty, with a bias towards higher prices on the risk of supply disruptions, and this is leading to a broad range of transaction prices being booked, often simultaneously, as participants scramble to deal. Disparity is further exacerbated by variations in delivery location and time and uranium form and origin, TradeTech notes.

Seven transactions totalling 700,000lbs of U3O8 equivalent were concluded in the spot market last week, as both utilities and intermediaries vied for supply. For the month of August, 4mlbs of U3O8 equivalent changed hands, up from 3.1mlbs in July, and TradeTech’s closing price of US$32.00/lb represents a $3.50/lb rise over the end-July price.

While only one term market transaction was reported in August, demand increased in the form of several supply tenders being issued by utilities for delivery in 2015-21. Outside of formal requests, off-market supply discussions were also noted. While there is no lack of producers and intermediaries lining up to pursue new sales opportunities, the rising spot price has affected a flow-through to the term market.

TradeTech has lifted its mid-term price indicator to US$34.50/lb from US$31.00/lb as a result. The consultant’s long term price indicator remains unchanged at US$44.00/lb.
 

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