By Greg Peel

Spot uranium supply has now become thinner, and sellers are backing off their offer prices, industry consultant TradeTech reports. In order to secure supply in a fragmented market, buyers are being forced to forgo their preferred delivery location or pay up, or stand aside and hope prices come down again.

Last week saw a range of transaction prices, influenced by varying delivery location, delivery timing, and form and origin of material. Ultimately six transactions were completed, bringing the year to date traded volume to 22.3mlbs of U3O8 equivalent, TradeTech reports. TradeTech’s spot price indicator finished the week up another US75c to US$31.25/lb.

There was a spate of good news for the industry last week, which makes a nice change.

China’s Fuqing unit one reactor was connected to the grid to bring the number of Chinese operating reactors to ten. Fuqing will eventually house six units.

The US Energy Secretary declared his support for nuclear energy at a conference, suggesting US energy production needs to be modernised to help minimalise the fallout from global warming. Secretary Moniz noted the US will not shun coal or oil as a result, but will push on with finding ways to reduce emissions from fossil fuel. Improving the nation’s 17 nuclear laboratories must be made a higher priority, said Moniz.

Japan’s Sendai units one and two are expected to be restarted as early as year-end (not all analysts agree with this optimism) and Japan has announced it will make a decision on the percentage of electricity to be generated from nuclear energy by late 2015, when the UN climate conference is held in Paris.

In the meantime, several offers are currently being sought by utilities in the spot market and term markets for various delivery times and amounts, TradeTech notes.

TradeTech’s term price indicators currently remain unchanged at US$31/lb (mid) and US$44/lb (long).
 

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By Greg Peel

Stop the presses, the spot uranium price has now risen three times in four weeks, with one unchanged week in between. Industry consultant TradeTech’s spot price indicator ended last week up US75c to US$30.50/lb, having risen a total of US$2.25 over the four weeks. Young commodities traders have been consulting their veteran colleagues to assess when this last occurred.

Admittedly there is a geopolitical premium included within that price rise, with regard the Ukraine-Russia situation. To date no sanctions have been placed on Russia relating to nuclear energy, and nor has Russia retaliated in this space, but the fluid and uncertain crisis leaves the possibility open on both counts. Potentially the uranium spot price might drop were the stand-off to be resolved, but as TradeTech reports, it’s not all about geopolitics.

The spot price has now moved back above the US$30/lb level considered roughly to be the net cost of global production. Arguably it could never remain below that level for too long given the number of production delays/shutdowns that have transpired. There is perhaps also a glimmer of hope the first Japanese reactor restarts may be on the horizon, if not this year then at least before too long. In the shorter term however, end-user utilities, who have stood back and watched prices fall while standing atop sufficient stockpiles, have begun to show interest once more.

Only three spot transactions were concluded last week totalling 500,000/lbs of U3O8 equivalent but TradeTech reports several utilities have tenders out for supply deals and are expected to accept offers this week. Hence last week sellers backed off their offer prices in anticipation.

Not for the first time in recent years, the spot uranium market has become disjointed. Buyers for delivery in Europe are currently prepared to pay more than their counterparts in North America, and uranium hexafluoride (UF6) is being offered at a discount to the more commonly sought triuranium octoxide (U3O8). TradeTech has been forced to weigh up this fragmentation before deriving the one indicative spot price.

There was no activity reported in the term market last week, leaving TradeTech’s term price indicators unchanged at US$31/lb (mid) and US$44/lb (long).

Meanwhile, Japan’s Hokuriku Electric Power Co applied last week for a regulatory safety assessment of its Shika unit 2 plant in the hope restart approval can ultimately be granted. Hokuriku is the last of Japan’s ten nuclear operators to file for plant approval, bringing to 33 the number of reactors/plants across the country currently under regulatory review.
 

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By Greg Peel

Volumes in the spot uranium market dropped back to more familiar levels last week following the previous week’s spike to 1.5mlbs exchanged. Industry consultant TradeTech reports only four transactions conducted for a total of 500,000lbs U3O8 equivalent. But while interest may have retreated, urgency crept in.

Traded prices thus gradually improved over the course of the week, ending Friday up US$1.25 to US$29.75/lb on TradeTech’s spot price indicator. The market hasn’t seen a full dollar or more weekly move in months. Two reasons are cited as impetus for this sudden volatility.

On the demand side, the end-users of product have become a little nervous with regard the potential for a further step-up in Western sanctions against Russia to impact on the nuclear fuel market, either directly or due to Russian retaliation. To date, Western sanctions have not included any consideration beyond “goods and technologies” related to the energy (oil & gas) sector. Russian retaliation for stepped-up sanctions have specifically targeted Western agricultural exports. As yet untouched are Russia’s enriched uranium exports, from either side of the tit-for-tat battle.

On the supply side, TradeTech notes many routine spot market sellers have been less active this quarter due to previously concluded contracts. There is thus now a less desperate scramble to raise cash, given fewer “have to” sellers in the market, and supply has thinned as a result. Sellers are now anticipating an uptick in mid and longer term uranium demand in the coming weeks, and as such are positioning themselves to capture any spot market spill-over.

Could this be the beginning of a long, long awaited uranium price rebound?

The Russian conflict is one possible driver of a price rebound, at least temporarily, but critical to any sustained recovery in prices is the restart of Japanese reactors. On that front, Kyushu Electric Power announced last week it would not be able to submit final documents to the regulator with regard Sendai units 1 and 2 until late September or October. The Sendai units are the first to have granted safety approval by the regulator but restart still requires the submission of documents from Kyushu Electric and potentially several months of final approval.

Hence it is unlikely Japan will see any restoration of nuclear power before the winter.
 

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By Greg Peel

Just when it looked like the last person to leave the uranium spot market was about to turn off the lights, volumes suddenly surged last week, industry consultant TradeTech reports. Six transactions were completed totalling in excess of 1.5mlbs of U3O8 equivalent, representing the highest weekly volume since September last year. For the month of July, 19 transactions were completed totalling 3.1mlbs, some million pounds more than changed hands in June.

With prices at nine-year lows, it is no great surprise the uranium market is generating at least some interest. However, there appears no reason to pop the corks and call the beginning of the recovery just yet. Market uncertainty contributed to last month’s pick-up in volumes, TradeTech notes. Enrichment company ConverDyn’s legal challenge of US government inventories being sold onto the market is still proceeding, and while the latest round of US/EU sanctions against Russia made no specific mention of nuclear fuel, Russia’s status as the largest global exporter of enriched product has market participants a little nervous.

As it was, the pick-up in volumes last month was attributable mostly to supply-side participants – producers and intermediaries – than end-user utilities. While there are two utilities with tenders currently out for spot delivery totalling 750,000lbs, utility demand continues to be seen more in the mid and longer term markets. Six transactions totalling over 10mlbs U3O8 equivalent were reported in July for delivery from 2015 to 2025.

It seems strange that producers would be suddenly buying up uranium on spot given it is producers who are jumping aggressively on every term market tender that comes along, thus ensuring prices remain steady at low levels. Producers usually only buy in product at spot to make up for shortfalls on contractual obligations, but given low demand ever since Fukushima, and the closure of reactors in Japan and Germany, producers have been building up significant stockpiles which they are keen to offload to support cash flow. Are they trying to arbitrage the price curve?

TradeTech’s spot price indicator reached US$28.75 last week before settling back to US$28.50/lb by week’s end, unchanged from the previous week.  The July 31 spot price of $28.50 was up US30c from the June 30 price. TradeTech’s term price indicators remain unchanged at US$31/lb (mid) and US$44/lb (long).

In other news, the Queensland state government has announced it is ready to accept mining applications having now ended the longstanding state ban on uranium mining. One might suggest the relatively new conservative government does not have a great sense of market timing. A previous Labor government banned uranium mining in 1989 when the long-running Mary Kathleen mine closed down, but the Beattie Labor government did attempt to negotiate a lifting of the ban last decade, only to be shot down by the powerful coal unions. Back then uranium prices were at their giddy heights.

While Queensland boasts several uranium mines-in-waiting and an estimated A$10bn of known reserves, it is hard to see the government being knocked down in an application rush given spot uranium is currently trading well below the calculated cost of new production, and mines elsewhere in Australia and the world are being shut down, delayed or shelved.

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By Greg Peel

Several utilities have been monitoring market conditions for the past few months, reports industry consultant TradeTech, and are now expressing interest in potential purchases. This is hopefully good news for a wallowing uranium spot market that failed again to become excited last week, despite an increased possibility of the first Japanese reactor restarts being not far off.

Sellers did back off on their offer prices last week and only four transactions totalling less than 400,000lbs of U3O8 were reported, leading to a tick-up in TradeTech’s spot price indicator of US20c to US$28.50/lb.

One utility is seeking 500,000/lbs for September delivery, with offers due next month.

In the enriched uranium market, simmering tensions between the US and Russia with regard the Ukrainian conflict have led US utilities to look to securing alternative supply were Russian exports to be cut off or banned, TradeTech reports. Yet current supply remains more than sufficient to meet current demand, hence enriched prices remain under downward pressure.

Within the US, an ongoing battle has been playing out over past weeks between the Department of Energy and uranium enricher ConverDyn, as the company seeks an injunction against further sales into the market of DoE inventories. ConverDyn is arguing the sales are impacting its revenues and are indeed in breach of the law. A court hearing is scheduled for July 29.

No new transactions were reported in the term market but new demand emerged, TradeTech reports, with a utility seeking offers for 2.5mlbs U3O8 equivalent to be delivered over five years. Several other utilities are expected to enter the term market in the September quarter.

TradeTech’s term price indicators remain unchanged at US$31/lb (mid) and US$44/lb (long).

UBS has cut its FY15 (June-end) average spot price forecast to US$35/lb from US$46/lb and FY16 to US$48/lb from US$53/lb. JP Morgan has cut its 2014 (calendar) forecast by 22% to US$31/lb, its 2015 forecast by 40% to US$30/lb and its 2016 forecast by 33% to US$40/lb.

JP Morgan had previously assumed a shortage would eventuate in uranium supply and given the current spot price is less than half that required for new supply to be viable, the assumption still stands over the long term. But with the anticipated restart of the first Japanese reactors dragging on and on, the broker now expects an inventory overhang for some time. The broker had also assumed two reactors would be restarted in 2014 and up to 42 by 2019, but this now seems optimistic.

The broker cites industry analysis by Reuters which suggests only 14 of Japan's 54 reactors are definite candidates for restart, another 17 are uncertain, a further 17 will likely never meet safety requirements and all six Fukushima reactors will be decommissioned.
 

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By Greg Peel

We recall that back in May, Japan’s Nuclear Regulation Authority tacitly approved new safety standards at Kansai Electric’s Ohi units 3 and 4 in the Tokyo prefecture. It appeared at the time Japan might be very close to restarting the first of its idled reactors, given the Abe government was champing at the bit, but local government approval first needed to be sought.

As it was, 189 residents of Tokyo and surrounds declared they could be at danger in the case of an accident, and the local district court agreed. Residents were not safe were the reactors to suffer a meltdown, or natural disasters such as tornadoes or volcanic eruptions, or other threats including terrorist attack. It was back to the drawing board, for both Kansai and the NRA.

Last week, however, Kyushu Electric Power’s Sendai units 1 and 2 in the Kagoshima prefecture were granted safety approval by the NRA under strict new regulations which take into consideration the above. Kyushu Electric has built a ten metre barrier to protect seawater pumps in the event of severe accident, prompted by the destruction of similar pumps at the Fukushima complex as a result of the 2011 earthquake and tsunami. The prime minister has suggested the government is ready to reactivate any of the idled reactors across the country as soon as they achieve NRA approval.

This means the first Japanese reactors restarts could be very close. However as was the case in Tokyo, a month-long public comment period now commences, and consent must be granted by the Kagoshima governor and the local government. The fat lady has not yet sung, and nor perhaps have questions of safety under asteroid strike, alien invasion or attack by Godzilla that might yet be raised by Kagoshima residents been answered.

The world waits.

As testament to uranium market weariness of restart false alarms, the spot uranium market was very quiet last week, industry consultant TradeTech reports. Only three transactions were completed totalling approximately 300,000lbs of U3O8 equivalent and no utilities were involved. TradeTech’s spot price indicator remains unchanged this week at US$28.30/lb, which incidentally is US5c higher than where it was when Kansai’s reactor restarts were overruled.

There was nevertheless a spark of interest noted from utilities in the spot market last week, with TradeTech reporting a handful finally wandering in to gauge interest. One issued a formal request for offers of up to 500,000lbs for delivery in September. In the term market, a utility selected its preferred supplier of 7mlbs U3O8 to be delivered over multiple periods beginning 2019.

TradeTech’s term price indicators remain unchanged at US$31/lb (mid) and US$44/lb (long).

CIMB's uranium analysts are leaning to the conservative side on the expected timing of Japanese reactor restarts. Having previously assumed the Sendai reactors would come on line by the end of this year, CIMB is now assuming a further year's delay. The longer Japan is without nuclear power, the more global inventories build up, hence the broker has cut its uranium price forecasts out to 2016.

That said, CIMB has also assessed reductions in global supply in the interim and modelled the demand-supply balance looking forward. The analysts expect inventory excess will begin to be soaked up over the next 12-24 months which will at least lead to market tightening, if not a deficit.
 

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By Greg Peel

Kyushu Electric Power Co’s Sendai units 1 and 2 are reported to be the closest of Japan’s 48 idled reactors to meeting the stringent new safety regulations being imposed by the Japanese regulator. The regulator last week delayed until later this week an interim report on the reactors’ potential restart, declaring additional evaluation of measures to deal with severe accidents was required.

If the regulator does issue approval this week, Kyushu Electric would still need to file other documents, industry consultant TradeTech reports, to complete the restart approval process.

And so we continue to wait.

In supply-side news, Energy Resources of Australia ((ERA)) has begun to reinstate production at its Ranger aboveground mind in the Northern Territory, which was shut down last year after a major leach tank failure. This particular restart has also taken longer than analysts had expected, with ERA selling only from stockpiles in the June quarter.

In the meantime, test drilling of ERA’s Ranger 3 Deeps underground resource has encountered poor geotechnical conditions. As far as Credit Suisse is concerned, the increased costs implied by the problem suggests the upside potential of the project has now “vanished”.

As an investment prospect, ERA’s potential depends entirely on Ranger Deeps going ahead. UBS, for example, values the stock at $1.82 on a go-ahead and $0.05 if the project is abandoned. This binary call leaves analysts divided, with Credit Suisse having now lost confidence, hence downgrading its recommendation straight to Underperform from Outperform, while UBS is still assuming a go-ahead and retains a Hold rating. JP Morgan (Underweight) does not believe the current uranium price environment justifies a go-ahead.

Last week saw very little activity in the uranium spot market, TradeTech reports, with only four transactions being conducted totalling less than 500,000lbs of U3O8 equivalent. Utilities were not involved. The term market saw a little more interest, with utilities settling on two mid-term and one long-term supply contracts.

Despite the lack of spot interest, TradeTech’s price indicator for the week rose US10c to US$28.30/lb, while term prices are unchanged at US$31/lb (mid) and US$44/lb (long).

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By Greg Peel

While the spot market might be the point of focus for global uranium trade, the reality is real end-users buy almost exclusively on longer term contracts with real producers, only entering the spot market for small parcels when necessary. Intermediaries act as go-betweens but spot markets also need active interest from speculators to provide liquidity.

There was little speculative interest in uranium prior to China’s emergence in the 2000’s, which coincided with a greater global acknowledgement of carbon emission issues. Speculators then decided uranium was a commodity with a future and in they piled. There followed a bubble and bust, but it was the Fukushima accident in 2011 which slowly killed off speculative interest once more.

Not only have the speculators left the building, but intermediaries have given the game away as well. While the exit of Goldman Sachs and Deutsche Bank from the market was prompted by changes to Fed regulations with regard investment bank commodity trading and warehousing, lack of market activity would have made the decision an easier one. Intermediaries remain, but the wind is certainly out of the market’s sails.

While it was understandable that nuclear utilities should postpone their purchases and inventory rebuilds until the fate of the Japanese nuclear industry, and extensive Japanese uranium inventory, was known, it was always assumed they would eventually have to restock. And new nuclear plants, such as those in China, would need initial material. However, it appears operations are well covered at present by existing supply contracts and inventory stockpiles that have yet to run down.

The result of lack of speculative interest, the loss of major intermediaries, no urgent utility demand and ongoing uncertainty surrounding Japanese reactor start-ups, has been a wallowing uranium market in the first half of 2014.

Industry consultant TradeTech’s spot price indicator was set at US$28.20/lb at the end of June, down US5c from May and down from US$34/lb at the beginning of 2014. The last three months have at least brought more stability to the spot price, but excess production is meeting a lack of buyer interest and price upside at this stage seems illusory. Current prices were last seen in 2005.

Activity in the spot market in June totalled just over 2mlbs of U3O8 equivalent in seventeen transactions, 500,000lbs lower than in May. Volume for the six months to June totalled 16.1mlbs compared to 19.9mlbs traded in the same period last year.

Activity has picked up slightly in the term market, albeit nothing to write home about at this stage. Despite low prices, utilities are by no means in a rush. Indeed, TradeTech has this month kept its mid-term price indicator steady at US$31/lb but lowered its long-term price to $44/lb from $45/lb.

There is a glimmer of hope on the horizon. Leading Australian investment bank Macquarie Group is set to enter the market for the first time as an intermediary this month, filling some of the vacuum left by Goldman Sachs and Deutsche Bank. This appears a contrarian play on Macquarie’s part, anticipating the day, whenever it may come, when uranium prices start to pick up again.

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By Greg Peel

The good news is industry consultant TradeTech’s uranium spot price indicator rose last week. The bad news is it was only by US10c, to US$28.20/lb, and was more representative of a lack of seller aggression than it was of buyer excitement. At least we can say, perhaps, that the level of seller urgency seen over past months, which has affected a fall in the spot price to below US$30, has eased off.

But TradeTech notes spot uranium demand remains weak, with very few buyers expected to enter the market in coming weeks. Last week saw only four transactions conducted totalling less than 700,000lbs of U3O8 equivalent.

While the restart of Japanese reactors remains as the swing factor in the global uranium market, analysts have suggested for some time that utilities around the globe would eventually have to start buying in new material. End-user buying all but dried up as prices continued to plunge post-Fukushima given utilities were happy to ride out the volatility on abundant stockpiles. The question is as to how much material they still have to tide them over.

Current prices would suggest plenty to date, but at least there is some interest returning to the term market, if not the spot market. One US utility has completed evaluation offers for up to 2.5mlbs of U3O8 to be delivered over two periods, beginning in 2016 and extending to 2020, while a non-US utility is finalising evaluation of offers for in excess of 7mlbs to be delivered over multiple periods in 2016-25, TradeTech reports.

It’s not enough to move the dial, but it’s something. TradeTech’s term price indicators remain unchanged at US$31/lb (mid) and US$45/lb (long).
 

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