By Greg Peel

With supply-side cutbacks having no impact on uranium prices to date, the industry is ever more reliant upon the restart of Japanese nuclear energy production. Last week the Japanese government released its annual energy report which highlighted the increasing cost of fuelling the country’s thermal power plants and the rising level of resultant carbon emissions.

Japan’s fiscal year 2013 (ending March) energy consumption was 88% dependent on fossil fuels compared to a peak of 80% during the 1970s oil crisis, industry consultant TradeTech notes. Imports of fuels including LNG cost Japan 10 trillion yen in FY2010, prior to the Fukushima accident, and 27 trillion yen in FY2013. Carbon dioxide emissions rose by 112mt to 486mt from FY2010 to FY2012. Previously Japan had taken a world-leading stance in emissions reduction.

It is of no-surprise the pro-nuclear Abe government has called for a return to nuclear power generation. The industry remains hopeful of the first reactor restarts by year-end, following stringent safety assessments, but local protests continue to cloud the issue.

Meanwhile, the French environment minister has proposed a bill that would see France’s electricity production mix shift to 50% nuclear, down from 70% today, balanced by an increase in renewables generation to 40% from a current 11%. The bill is consistent with Prime Minister Hollande’s election pledge.

The uranium term market saw some action this week, with two mid-term transactions involving intermediaries reported. TradeTech notes a buyer of 2.5mlbs of U3O8 equivalent for 2016-20 delivery is also to announce a preferred seller this week while another utility is evaluating offers for 7mlbs over a 2016-25 delivery period.

Activity in the spot market nevertheless remains lacklustre. TradeTech reports only three transactions were conducted last week totalling 400,000lbs of U3O8 equivalent. With supply continuing to outstrip demand, sellers are reluctantly lowering prices in an effort to close business. TradeTech’s spot price indicator has fallen another US15c to US$28.10/lb.

TradeTech’s term price indicators remain unchanged at US$31/lb (mid) and US$45/lb (long).
 

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By Greg Peel

Last week President Obama proposed revamped regulations for US power plants with the aim of cutting carbon emissions 30% by 2030. Industry officials have pointed out that such a drastic cut, which is largely targeted at coal-fired plants, is not achievable without the contribution of nuclear power to the US energy mix.

In Japan, Tohoku Electric Power Company has applied to the regulator for safety checks on unit 1 at its Higashidori nuclear plant in its efforts towards restarting the idled reactor. We recall, nevertheless, that great hopes were held for the restarts of Kansai Electric’s Ohi units 3 and 4 sometime in the second half of 2014 to represent the first Japanese restarts and a big shot of confidence for global uranium demand. Yet last month the court upheld environmental protests from the local citizenry and thus threw any impending restarts into doubt.

The uranium spot price thus continues to wallow. The week before last provided possible light at the end of the tunnel with a US25c rise in price – any rise being a rare event in recent months – but alas the rebound only served to inspire the sellers. Industry consultant TradeTech reports five transactions were conducted in the spot market last week, totalling 600,000lbs. TradeTech’s spot price indicator has fallen back US15c to US$28.35/lb.

Meanwhile, the supply-side response continues. Last week Rio Tinto ((RIO)) announced it would cut back the workforce at its majority owned Rossing mine in Namibia by 23% in response to weak global uranium demand. Rossing produced 6.3mlbs of U3O8 in 2013.

The term market at least showed some signs of life last week, TradeTech reports. One mid-term transaction was completed, two utilities are presently evaluating offers and another entered the market looking for offers. TradeTech’s term price indicators remain unchanged at US$31/lb (mid) and US$45/lb (long).
 

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By Greg Peel

Early May saw the relentless fall in the spot uranium price stall briefly before another drop, then another stall two weeks ago. May also saw the spot price trading under the suggested average cost of production level of US$30/lb. With a hint of potential price stability now creeping into the market, last week the buyers were a little more interested. The result was a rare up-tick in industry consultant TradeTech’s spot price indicator by US25c to US$28.50/lb.

Four transactions were conducted in the spot market last week totalling 500,000/lbs of U3O8 equivalent. Producers sold, utilities bought, and intermediaries participated on both sides. Last week market participants were gathered in New York for the annual World Nuclear Fuel Market conference. In days gone by the uranium market would go quiet over this week and then pick up with enthusiasm the following week as attendees returned to their desks.

Industry conferences often generate enthusiasm as refreshments shared by the likeminded often help in “talking up” market prospects. But this year’s conference was a more sanguine affair, with optimism hard to engender no matter how many refreshments were on offer. The focus was on the future of the uranium market and those operations around the globe which TradeTech calls pivotal in determining that future.

TradeTech’s “Pivotal Projects” are those which are large and on the bottom half of the cost curve or of strategic value otherwise. They are Cameco’s Cigar Lake in Canada, China General Nuclear Power Group’s Husab project in Namibia, AREVA’s Imouraren project in Niger, Energy Resources of Australia’s ((ERA)) Ranger Deeps in the Australia’s Northern Territory, and, in a word, Kazakhstan.

After a decade of setbacks, Cigar Lake, the world’s second largest deposit after BHP Billiton’s Olympic Dam, is producing. With an annual production target of 18mlbs per annum after full ramp-up, and grades up to 100 times the global average, Cigar Lake has the potential to displace dozens of smaller producers, TradeTech suggests.

Husab is not dissimilar, given vast reserves, but the project lacks infrastructure as yet hence significant capital costs must be applied. Production is imminent, subject to financing, which shouldn’t be an issue given CGNPG has attracted favourable bond rates. The project nevertheless also requires favourable market conditions.

Conditions are currently not sufficiently favourable for AREVA. The Imouraren project also offers vast deposits and large production potential and has the capacity to elevate Niger to the position of globally significant uranium producer, but the project is now delayed pending an improvement in the market.

ERA’s above-ground Ranger mine has now received government approval for a progressive restart after a leach tank failure shut the mine in December. But Ranger’s future lies with the underground Ranger 3 Deeps project which potentially offers extensive reserves at a known longstanding production site.

The government-owned Kazatomprom mining company enjoys strong political, and thus financial, support given uranium’s significant contribution to the Kazakhstan economy. Katatomprom's options sit in the lower half of the cost curve as a result, and Kazakhstan represents a controlled 30-35% of global production.

Given their large size and low cost/strategic importance, these Pivotal Projects are less sensitive to prevailing uranium prices than other projects. However, as AREVA’s decision in Niger attests, the current historically low level of uranium price means even the biggest projects are vulnerable. “Should one or more of them not prove economically justifiable,” suggests TradeTech, “there would be a notable impact to the market”.

TradeTech's term market price indicators were unchanged last week at US$31/lb (mid) and US$45/lb (long).
 

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By Greg Peel

There was no change to industry consultant TradeTech’s weekly uranium spot price indicator last week after four transactions totalling 500,000lbs of U3O8 equivalent were conducted with neither side interested in paying up or selling down. TradeTech’s weekly price of US$28.25/lb also represents the month-end price, with May having seen a fall of US$1.85 from April to a level last seen in April 2005.

Over the past twelve months, the spot uranium price has fallen 30%.

The fall comes despite several shut downs and postponements to uranium mining projects, which were ongoing last week. Paladin Energy’s ((PDN)) Kayekeleera mine in Malawi officially went into care and maintenance last week while French uranium major AREVA announced the delay to production start-up at its Imouraren mine in Niger, pending improved pricing. Similar announcements have been made recently by Rio Tinto ((RIO)) and Cameco.

While the shutdowns and delays are testament to an industry in a downward spiral since the Fukushima accident brought reactor shutdowns in both Japan and Germany, uranium sellers have welcomed the moves as necessary for establishing any sort of fresh price support.

A total of 23 transactions totalling 3mlbs of U3O8 were conducted in the month of May, TradeTech reports. The “have to” demand for immediate delivery characterising much of the buying interest in the past has shifted to suppliers finding themselves in a “have to” sell position. Multiple sellers and limited sales opportunities continue to define the term markets as well, TradeTech notes, with both intermediaries and primary producers fighting aggressively for each new potential contract, particularly if that contract is mid to early long-term.

TradeTech reduced its mid-term price indicator to US$31.00/lb from US$33.00/lb last week while leaving its long-term indicator of US$45.00/lb unchanged. There is nevertheless good news to be found on the demand side of the longer term uranium equation.

While not impacting on uranium prices, there has been some concern in energy markets with regard potential sanctions against Russia in light of the Ukraine conflict. Russia is the net largest exporter of fossil fuels and also a significant player in the uranium market through the export of enriched fuel and the construction of nuclear reactors for foreign customers. So far the sanction story has remained one of apparent stand-off, while in the meantime Russia has pushed ahead with its reactor building contracts.

Russia and China have reportedly signed a contract for the former to assist the latter in building a floating nuclear power plant. The world’s first floating power plant is currently under construction in St Petersburg. Russia has also signed a general framework agreement to build units three and four at the Kudankulam plant in southern India, and signed a memorandum of understanding to build, supply and maintain a nuclear plant in Kazakhstan. It would be the first reactor built in Kazakhstan since the closure of the Aktau reactor in 1999.

Meanwhile, the Obama Administration’s new US energy policy, released last week, outlines an “All of the Above” strategy which recognises that no single energy source is sufficient to meet the energy challenges and goals of the world’s largest economy. The report highlights a commitment from the US Department of Energy to nuclear power and support for the commercialisation and deployment of new technologies for reactors both small and large. The news should be a relief for those in the uranium industry wondering if the US shale gas explosion may prove a death knell for nuclear energy in a country that has seen its own share of nuclear accidents.

On the other hand, aforementioned India may have signed up the Russians to build two new reactors but the newly elected Indian prime minister favours development of renewable energy sources for his burgeoning population, such as solar and wind, and thus may defer plans to install 20 gigawatts of nuclear capacity in India by 2020.

Yet possibly the best news of the week and beyond for uranium comes out of Japan. To date the Japanese Nuclear Regulatory Authority has frustrated the local nuclear power industry with its apparent reluctance to grant necessary safety approvals ahead of reactor restarts. But the five-year tenure of the two NRA chiefs will end in September and Prime Minister Abe has already chosen his two, more nuclear power disposed replacements. Abe has a track record of filling public service positions with the like-minded (See Bank of Japan governor) and it is hoped the process of restart approvals will be sped up after the changeover.

That said, restarts can still be challenged in Japan’s district courts, successfully, by local protesters, as was seen a week earlier when a court ruled in favour of blocking the first two pending restarts near Tokyo. An appeal is set to follow.

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By Greg Peel

Industry consultant TradeTech’s spot uranium price indicator wallowed at US$28.25/lb last week, unchanged from the week before. Low prices are drawing some increased buying interest into the market, TradeTech reports, but not enough to move the dial. Only four transactions were conducted in the spot market last week, totalling 400,000lbs of U3O8 equivalent. Intermediaries, as well as utilities, were on the buy-side.

Crucial to any reinvigoration of uranium prices, spot or term, is the restart of Japan’s nuclear reactors. Despite production cuts and abandonments across the globe, the end of the Russian HEU scheme and an increase to planned Chinese reactor construction, the global uranium market remains sufficiently supplied at present, right through to term contract requirements. The swing factor for global demand-supply is stockpiled Japanese uranium which hangs over the market as a dark cloud.

For several weeks the market had been able at least to look forward to the restart of the first two Japanese reactors – Kansai Electric Power Company’s Ohi units 3 and 4 – sometime later this year, following the Japanese regulator’s safety green light. The first two restarts would be the precursor to around ten more in the near term. But while the Japanese government’s desperate attempts to restart the entire economy after decades of deflation are being derailed by the country’s need to replace the 30% of electricity previously provided by nuclear generation with costly fossil fuel alternatives, 189 Japanese citizens of Tokyo and surrounds have argued they could be in danger from an accident at the plant. The District Court has agreed.

Kansai EPC will appeal the ruling, but presumably it’s a no brainer that danger would indeed result from a reactor accident. The point is to make the reactors accident-proof, which is what the new and onerous regulations introduced post-Fukushima are intended to achieve. Crossing the street can also be dangerous.

This is not good news for a global uranium industry in despair. Leading producer Cameco last week withdrew its application to the Canadian regulator to licence the company’s Millennium mining project in Saskatchewan, citing current market conditions. Cameco will no more than keep the project ticking until such time as the market signals new uranium projects are required.

Meanwhile, majority Rio Tinto-owned ((RIO)) Rossing Uranium has pre-empted a likely increase to layoffs at its Namibian operations as the miner hits lower grades in the current environment of reduced demand.

TradeTech’s term price indicators remain unchanged at US$33/lb (mid) and US$45/lb (long).
 

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By Greg Peel

The week before last, industry consultant TradeTech’s uranium spot price indicator was unchanged from the week before that at US$29.00/lb. It was the first week since end-January the price had not fallen. With US$30/lb considered roughly the line in the sand of average production cost, it seemed as if finally the elastic band may have stretched to its extent of post-Fukushima weakness.

But last week proved this but a mere fleeting brush with stability, let alone a trough. The bad news is TradeTech’s spot price indicator is down another US75c to US$28.25/lb.

Last week the US Department of Energy released its latest Secretarial Determination regarding management of its excess uranium inventory. The determination allows for sales of no more than 2705 tonnes of uranium for each of the years 2014-22. Last year the DoE’s Uranium Inventory Management Plan called for sales to drop to 1700 tonnes from 2018.

It seems remarkable the government would choose to kick a struggling market when it is clearly down, given a supposed legal obligation to ensure such sales “do not have an adverse material impact on the domestic industry”. The DoE found there would be no material impact. The Uranium Producers of America begged strongly to differ.

The good news is that the buy-side has indeed been roused by the fall in the uranium price to below the production cost barrier. TradeTech reports eight transactions in the spot market last week totalling 1mlbs of U3O8 equivalent. Volumes have not hit the million mark since March.

In other news, the US Energy Information Administration announced last week that US commercial nuclear plants purchased a total of 57mlbs of U3O8 equivalent in 2013 at a weighted average price of US$51.99/lb, down from 58mlbs purchased in 2012 at US$54.99/lb. Macquarie highlights the reason behind uranium’s price decline as a simple matter of global excess inventory meeting insufficient demand.

The bad news here, as Macquarie notes, is that “contract coverage” is currently high, meaning utility requirements for fuel can largely be met by deliveries already scheduled on long-term contracts. There is thus little reason to enter the spot market for volume, hence the spot market has the potential to keep on falling.

TradeTech’s term price indicators remain unchanged at US$33.00/lb (mid) and US$45.00/lb (long).
 

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By Greg Peel

It started out at US$50/lb – the post-Fukushima price it was assumed would prove a floor for the uranium spot price. Indeed the price did hold and bounce off 50 briefly, but it wasn’t long before 50 was breached and 40 became the new assumed level. Then in a world of oversupply, lack of buyer interest, the withdrawal of significant intermediaries and ongoing delays to Japanese reactor restarts, spot uranium breached 30 two weeks ago – the price considered to represent the average cost of production.

Industry consultant TradeTech’s spot price indicator was marked at US$35.40 on January 31 and every week since has seen an incremental slide until last week, when the indicator stalled at an unchanged US$29.00/lb. Volumes remained low last week at 600,000lbs of U3O8 equivalent over four transactions.

As TradeTech had speculated, the breach of the average cost barrier affected a psychological change in market attitude. Sellers who have been aggressive in recent weeks backed off and buyers who have been ambivalent for some time began to show interest, with two utilities entering the market each seeking below 500,000lbs and intermediaries looking for material on twelve-month delivery. One week of unchanged prices does not a summer make, but perhaps, this time, a “floor” really has been found.

We shall not yet tally our poultry.

Indeed, it appears the restart of Japan’s first two reactors will now be delayed. The nuclear industry was hoping for the first restarts to occur in time for peak power demand in the Japanese summer but the regulator has told Kyushu Electric Power that safety upgrades to the Sendai 1 and 2 plants are insufficient. While presumably the Sendai plants are now earthquake proof, they remain vulnerable, according to the regulator, to an airliner crashing into them, or some other such inferno-causing event.

Meanwhile, the US Energy Information Administration had good news and bad news for the nuclear industry last week. The good news is that an anticipated decline in coal’s share of power generation will impact positively on nuclear generation demand. The bad news is that while the EIA forecasts US electricity demand to increase 30% to 2040, nuclear’s share of generation is only forecast to increase to 20% from 19% by 2025. The bulk of the slack will be picked up by natural gas-fired generation, the growth of which is expected to outpace nuclear by eightfold.

TradeTech’s uranium term price indicators remained unchanged last week at US$33.00/lb (mid) and US$45.00/lb (long).
 

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By Greg Peel

A spot uranium price of US$30/lb is considered to be both a psychological and production cost barrier, industry consultant TradeTech reports, too low to make new production commercially viable. During the month of April, eighteen transactions were completed in the spot market totalling 1.8mlbs, with traders and intermediaries becoming increasingly desperate to offload excess positions and producers to offload excess inventory. Sellers had to go looking for buyers.

TradeTech’s spot price indicator fell to US$30.10/lb by April 30 down from US$34.00/lb on March 31, but the two extra trading days to the end of the week saw TradeTech’s weekly price indicator fall to US$29.00/lb, down US$1.75 from a week earlier.

Concern had already long been mounting, the consultant notes, that prices have fallen precipitously low and are insufficient to support new primary production. This most recent drop is sure to evoke more angst and will further expose the gap between longer standing producers, who tend to hedge their production, and developing producers who have not hedged.

Three transactions were conducted in the term market over April and there remains interest on the demand side, but not with any great “have-to” urgency. TradeTech has lowered its term price indicators, to US$33/lb (mid) from US$37/lb previously and to US$45/lb (long) from US$50/lb previously.

The spot uranium price is now at a nine-year low. Yet in 2013, US producers, for one, increased their production by 6% over 2012 and achieved an average contract price of US$44.65/lb, down from US$49.63/lb in 2012. Exploration expenditure fell 25% year on year.

Despite falling prices, uranium market participants remain stoically optimistic about the industry’s long term fundamentals. On the demand side, the eventual restart of Japan’s reactors and increasing reactor construction in China provide hope while on the supply side, low prices are shuttering mines, curtailing plans for new mines or expansion, cutting exploration capex and must, one presumes, soon shut down some marginal producers altogether, as has now proven the case among US met coal producers (See: As US Producers Pull The Plug Will Coal Prices Go Up?).

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By Greg Peel

The government of Belarus has issued a construction licence for the country’s first commercial nuclear plant.

That about sums up the good news.

It is worth noting that prior to about 2005, the uranium spot market was a minor distraction, existing only for the purpose of producers to make up term contract shortfalls or reduce inventories, with traders standing in as intermediaries between producers and utilities. The real uranium market was in term delivery contracts. But then as the China super-cycle became apparent, speculators stampeded into the uranium spot market.

The result was a subsequent bubble to 2007 and a spot price of nearly US$140/lb before a 2008 bust back down to US$50/lb. Utilities rested on their stockpiles during the madness. Speculators were severely burned but tried their luck again ahead the 2011 tsunami, before being burned again. The final throw of the dice was prompted late in 2013 when it appeared Japan was about to announce reactor restarts.

But even that didn’t work. The two big intermediary players – Goldman Sachs and Deutsche Bank – have left the market and the only speculators left still playing, it would seem, are those still caught long. Those speculators are joined by producers stuck with product in an oversupplied market. No one is buying, at least in any quantity.

Only three spot transactions were transacted last week, industry consultant TradeTech reports, at successively lower prices, for a total of 400,000lbs of U3O8 equivalent. The sellers are desperate and the buyers are ambivalent, it would seem. TradeTech’s weekly spot price indicator has fallen US$1.75 to US$30.75/lb.

If you went on holiday in 2005 and just returned, you would assume nothing much has changed in sport uranium, price or market volume wise. And perhaps that’s the way things are going to be.

The question now is as to whether the spot market will continue to have any influence over the term market, as it has this past decade, or whether utilities will just settle their future delivery requirements on independently assessed pricing. In other words, should we see the relentless decline in the uranium spot price as representing the demise of demand or the demise of the spot market itself? For we know that term market demand must soon pick up from utilities, lest they run out of fuel, and we know that there are a few currently tendering for delivery contracts without seeming in any great rush.

Why would they be? The spot price keeps falling. But TradeTech’s term price indicators are unchanged again this week at US$37.00/lb (mid) and US$50.00/lb (long).

Aside from the Belarus bombshell, the other news from last week is that Beijing has included specific nuclear (and hydro) construction projects in its most recent stimulus micro-package. Buy we know China plans to build reactors at a rollicking pace, and we know Japan will restart its first reactor before year-end, so there is not much else in the way of new news left to excite the uranium market.

At least until the last speculator has turned out the lights.
 

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