By Greg Peel

Australian-listed uranium producer Paladin Energy ((PDN)) last week announced it would place its Kayelekera project in Malawi into care and maintenance until “a sustained price recovery occurs”. The shutdown at least temporarily removes around three million pounds of U3O8 from annual supply.

Paladin has always pursued a policy of selling uranium at spot pricing from both its Kayelekera mine and its Langer Heinrich mine in Namibia, eschewing longer term contracts. The policy proved successful when production was ramping up as Paladin was able to achieve higher net pricing on sales than longstanding producers who were tied to legacy long term delivery contracts at lower fixed pricing. Then along came the Japanese tsunami.

The boot is now on the other foot, with rival producers enjoying delivery on term contracts at higher fixed pricing than the current wallowing spot price. Kayekelera was the second of Paladin’s two mines to reach full production capacity and costs have been reduced by some 24%, yet still the company is burning cash as it sells uranium at spot prices below the net cost of production. Recently Paladin sold off a 25% stake in Langer Heinrich in order to head off debt issues, but is not yet out of the woods.

The irony, of course is that the spot price rose on the news. A US35c rise to US$35.75/lb last week in industry consultant TradeTech’s spot price indicator is nevertheless well short of “sustainable”. The week began quietly before the Paladin announcement prompted 600,000lbs of U3O8 equivalent to change hands in five transactions, with both utilities and traders on the buy-side. The speculative buyer seeking one million pounds is still in the market and expected to deal.

There was no action in the term market last week. TradeTech’s term price indicators remain unchanged at US$38.50/lb and US$50.00/lb.

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By Greg Peel

Last Friday was also the end of the month, hence industry consultant TradeTech’s uranium spot price indicator of US$35.40/lb on the day represents a US20c fall from the week before but a US90c increase from the end of December.

Activity picked up considerably in January compared to December, TradeTech notes, with a total of 3.7mlbs of U3O8 equivalent changing hands in 24 spot transactions compared to 2mlbs the month before.

Momentum up to mid-month was driven by supply-side impacts on the one hand, with production difficulties experienced in both Australia and Africa, and a demand-side impact on the other with the return of a large institutional buyer looking for offers for over one million pounds of U3O8. The buyer first appeared in the latter half of 2013 but withdrew unsatisfied when previously anxious sellers pulled back their prices. Once again it appears the buyer is not prepared to chase the market, hence momentum eased as the month wound to a close.

In the latter months of 2013, intermediaries were the prime source of selling, TradeTech notes, and appeared keen to offload unwanted inventory before year-end. In January however, producers were responsible for the majority of sales. There were also producers on the buy-side, likely looking to make up contract shortfalls, as well as intermediaries and actual consumers (utilities). The market also became fractured in January on a geographical basis – a not uncommon occurrence – resulting in buyers in Europe bidding above offer prices in North America. Last week saw 800,000lbs change hands in the spot market, almost all of it for North American delivery, TradeTech reports.

January also saw activity in the uranium term market, with three transactions reported. Utilities from both sides of the Atlantic selected suppliers for 2mlbs of U3O8 equivalent for 2014-20 delivery. The good news for those bullish the uranium spot price is a US$1.00 increase in TradeTech’s mid-term price indicator in January to US$38.50/lb. The consultant’s long-term price indicator remains unchanged at US$50.00/lb.

In other news, the South Korean government has approved the construction of two new reactors by 2020. Korea’s electricity supply has been restricted since the closure of a series of plants due to safety issues. Currently 23 reactors produce a third of the country’s electricity requirements but the government intends to cut that figure to 29% of total power supply by 2035, down from a previous 41% target.

China is also moving ahead on new reactor approvals, specifically with the ultimate aim of cutting coal consumption and improving air quality. Measures will be gradually introduced this year to promote the construction of plants in coastal areas (what could possibly go wrong?) while improving the safety of inland plants. China currently has 23 reactors in operation and another 28 under construction.
 

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By Greg Peel

This report noted last week the return of an institutional buyer seeking 1mlbs of U3O8 in the uranium spot market after having withdrawn the same order in the latter half of last year. The order has had the same effect the second time around, that of sellers pulling back their offers to higher prices, and hence the spot uranium price has ticked up a little of late. But as was also the case last year, it does not appear the buyer is a price chaser.

Higher prices brought in more sellers last week, but there weren’t any buyers in panic mode. Moreover, actual buyers currently in the market, not counting speculators, are seeking delivery in Europe when the bulk of sellers are looking to deliver in North America, industry consultant TradeTech reports. These geographical mismatches occur from time to time and can result in bids in one region exceeding offers in the other, with no recourse. Hence TradeTech’s weekly spot price indicator finished down US40c to US$35.60/lb last week as North American sellers were forced to take what they could get. Eight transactions occurred for a total of 850,000lbs of U3O8.

Market participants have been pondering the liquidity issues potentially thrown up by the ongoing departure of large global investment banks from the spot market. Goldman Sachs and Deutsche Bank have both withdrawn from trading in physical commodities, including uranium, leading some to worry spot market volumes may dry up. However, the banks have withdrawn following new regulations intended to end the practice of commodity warehousing and price manipulation, suggesting the withdrawal of Goldman and Deutsche may mean less product tied up in warehouses. And both intend to sell rather than simply close down their businesses, with inventory on hand, so new operators maybe actually provide for greater spot market liquidity.

Beyond issues of short term liquidity lays the more important macro picture of the short to medium term supply/demand balance.

On the supply side, Australia has been in the spotlight due to unscheduled maintenance shutdowns at both Rio Tinto’s ((RIO)) uranium projects while last week BHP Billiton reported 3% lower uranium production for the quarter at Olympic Dam than the same quarter last year due to maintenance. Meanwhile, cash-burning Paladin Energy ((PDN)) was finally able to announce a buyer for an equity stake in the company’s Langer Heinrich project.

Government-owned China Uranium Corp has acquired a 25% stake at a below-valuation price when compared to analyst consensus numbers for Paladin. CUC has also secured an offtake agreement which will see it secure its pro-rata share of product at spot pricing. The equity injection keeps the wolf from Paladin’s door for now with regard debt obligations but does not change the fact the company continues to produce uranium at a cost above the current spot price.

The world’s biggest producer of uranium, Kazakhstan, announced a 2013 level of production equivalent to that of 2012. This is of little surprise, given that’s exactly what government-owned Kazatomprom had pledged to do, despite much greater capacity. Whatever supply/demand balance numbers uranium analysts may forecast for the years immediately ahead, they will always be under threat of Kazakhstan upping its capacity ante if prices improve.

The swing factor of course remains Japan, where last week the now government-controlled Tokyo Electric Power Company gained approval from the government for its post-Fukushima business plan. The plan hinges on the restart of two reactors at the Kashiwazaki-Kariwa plant, being the first two reactors to pass new and far more stringent safety requirements.

Many a uranium analysts believes the restart of these reactors will signal the rebirth of the uranium market, post-Fukushima, and a rebound in the uranium spot price. Once these two reactors start, another four with safety approvals can follow, and others now undergoing their inspections will fall into line beyond that. A restart will mean the end to the uncertainty surrounding the Japanese government’s political wavering.

Popular and political opposition, including from the governor of the prefecture in which the K-K plant is located, nevertheless remains an impediment and the world is hanging out for any news from Tokyo. The Abe government, which is pro-nuclear, may simply be forced into the unpopular decision to reinstate the country’s nuclear industry for economic reasons. The cost of importing fossil fuel alternatives to fire Japan’s generators is not only resulting in growing monthly trade deficits but is threatening to derail Abe’s entire economic restart policy.

The world can only wait.

Deutsche Bank analysts believe Japan’s reactors will restart, but that the process will be a slow one. However, demand from new Chinese reactors should send the uranium market into balance in 2014, they contend, following three years of oversupply. Deutsche forecasts a spot price of US$55/lb by the fourth quarter but sees flat pricing thereafter as new supply, including from Canada’s Cigar Lake, hits the market.

Citi agrees conditions should be tighter up to 2015 but forecasts a world in surplus beyond 2020 as nuclear energy loses its appeal and less dangerous natural gas becomes the value proposition for electricity generation. Citi also sees Kazakhstan as the uncertain swing factor given its power of global supply manipulation. Citi has set a spot price forecast for Australian fiscal year FY14 of US$39/lb, rising to US$48/lb in 2015, but has left its long term price forecast unchanged at US$50/lb.

Cantor Fitzgerald is more optimistic. Cantor sees 2014 as the “kick-off” year for a rebound in uranium prices and sees “significant” upside from current spot. The current spot price is below the current marginal cost of production of US$40/lb, Cantor notes, and well below the minimum incentive price for new supply of US$70/lb. The analysts suggest a “violent” price reaction once the first of Japan’s reactors restart and forecasts 12 reactor restarts in 2014.

Cantor is far less pessimistic over the longer term outlook for nuclear energy and suggests supply deficits in the next two of five years and a “large and unavoidable” deficit from 2019 as global demand outpaces global supply.

Uncertainty and disparity of view clearly still dominates the global uranium industry.

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By Greg Peel

It was in August last year when the spot uranium price reached its recent nadir (and seven-year low) in trading at US$34/lb. It was in that month an institutional buyer entered the market looking for offers of one million pounds of U3O8. We could justifiably assume the buyer was looking to take a speculative position at the lows in price, but the order managed only to scare everybody off.

Knowing there was a big speculator in the market, sellers of uranium, who had been forced up to that point to chase ever lower bids, pulled back on offer prices. Those actually needing to buy uranium at the time were forced to pay up and the spot uranium price enjoyed a bounce. It was nothing spectacular – spot prices briefly traded above US$36/lb once more – but given analysts had begun to argue, on the weight of the demand-supply balance at the time, that uranium prices were set to rise, a sense of relief started to permeate and the pundits assumed the rise was indeed in train.

Having not been set at the price it wanted, the institutional buyer then pulled out. Normal programming was restored, the spot uranium price waned once again, and analysts, while not necessarily accused of being wrong, were at least seen to have been premature in their call.

Well, they’re baaack.

Industry consultant TradeTech reports that the same buyer has resurfaced once more, again looking for offers for one million pounds of U3O8. The difference this time is the spot uranium price has already improved a little of late. Analysts are still calling an inevitable bounce in uranium prices, and indeed are more insistent than they were previously given the various supply restraints which have impacted on the market since late last year. Will the buyer chase the sellers this time? Or will it just be déjà vu all over again?

The spot market saw 800,000lbs of U3O8 equivalent change hands last week, TradeTech reports, across six transactions. The price remained flat right up to the end of the week, when you know who resurfaced.

In the term market, a buyer of 500,000lbs for 2014-16 delivery has selected a seller, TradeTech notes, while several utilities are evaluating offers across varying delivery dates.

TradeTech’s spot price indicator rose US$1.00 to US$36.00/lb by week-end. TradeTech’s term price indicators remain unchanged at US$37.50/lb (mid) and US$50.00/lb (long).

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By Greg Peel

It has not been a happy new year for uranium producer Rio Tinto ((RIO)) which having first suffered a leach tank failure at its Ranger mine in Australia, owned by Energy Resources of Australia ((ERA)) of which Rio is the majority shareholder, has also suffered a leach tank failure at its Rossing mine in Namibia. Meanwhile, AREVA has decided to close its two mines in Niger for maintenance for a month as it awaits approval for a licence renewal from the Niger government.

These events simply add to the growing list of uranium supply disruptions and curtailments that began to build towards end-2013. Add a low uranium price to the mix and analysts are assuming further curtailments may yet await and new production plans will remain in the drawer. This then leads to the typical commodity market chicken-egg principle that production cuts due to lower prices will lead to higher prices on a subsequent supply squeeze. Many an analyst began to predict higher uranium spot prices from the last quarter of 2013 but was left disappointed by sellers sitting on excess inventory keen to square their positions ahead of year-end. Watching on were the genuine consumers, who seemed in no rush to start stocking up at supposedly low prices.

Participants began to drift back to the market after New Year breaks last week, resulting in four transactions being concluded in the spot market. Prices improved for sellers as the week progressed, industry consultant TradeTech reports, leading to a rise in the consultant’s weekly spot price indicator of US50c to US$35.00/lb.

TradeTech’s term prices remain unchanged at US$37.50/lb (mid) and US$50.00/lb (long).

Despite retrenchment in the supply-side of the industry, Japan remains the swing factor in the ongoing supply-side story. In simple terms, Japan is carrying substantial stockpiles of uranium earmarked for consumption by the country’s nuclear plants which are currently all shut down pending clarity from the government on a future nuclear policy. Were the government to elect to walk away from a nuclear future, not only would those stockpiles need to be sold given their redundancy, they would desperately need to be sold to help finance the heavy cost of the country’s fossil fuel consumption alternative.

Japan boasts 61.3GW of electricity production capacity from its reactors, existing and planned, TradeTech notes. Of that capacity, 6.3GW has now been lost at Fukushima and another 5.9GW is unlikely to restart. A total of 15.4GW is either planned or under construction and currently suspended. That leaves 33.8GW that could restart if policy allows and safety checks pass new, very strict requirements. Of that capacity, 15.6GW, representing 16 reactors, is currently awaiting approval.

It was assumed the new Japanese government, now one year old, would move swiftly to reinstate Japan’s nuclear capacity given a pro-nuclear policy. But the spectre of Fukushima still looms large, providing staunch opposition from the electorate and many politicians. Lifting existing reactors to new levels of safety has taken time, but the Abe government has also vacillated. Clearly the policy manoeuvres need to be delicate.

The bottom line is one of Abe trying to drag the Japanese economy out of twenty years of stagnation while not only having to pay out trillions of yen in Fukushima-based compensation, clean-up and decommissioning costs, but further trillions to import the oil and natural gas needed to fuel the 30% of Japan’s electricity generation previously supplied by nuclear plants. Add to this the knock-on effect of a substantial industry of any nature now idle, costing jobs and curtailing economic activity in the cities and towns at which nuclear plants are located. Japan’s is a manufacturing economy currently being offered unprecedented export support through orchestrated devaluation of the yen under Abe’s controversial policy actions. Yet the country is currently running up trade deficits every month given the offsetting cost of fossil fuel imports.

Something, one presumes, has to give.

Utilities across the globe have held off on committing to fresh supply contracts, despite historically low uranium prices, given it remains unclear whether Japanese stockpiles will yet be dumped onto the market. Producers operating newer mines, such as Australia’s Paladin Energy ((PDN)) for example, have been producing uranium at a cash cost above spot. If there is no respite from weak spot prices, the inevitable is on the cards for the likes of Paladin. But if Japan were to restart just one reactor, suggesting a nuclear Japan is back on the agenda, the response from buyers would be swift.

US investment firm Raymond James believes six reactors will be back online in Japan by end-2014. While acknowledging the shrinking ex-Japan supply-side for uranium, the analysts further highlight the extent to which utilities across the globe have allowed their inventories to dwindle without securing necessary ongoing supply contracts while the Japan uncertainty has played out. Such “uncovered uranium requirements” have now grown to 38mlbs in 2016, 53mlbs in 2017 and 71mlbs in 2018 according to industry data which in aggregate represent a 25mlb increase on only one year ago.

“The takeaway,” says Raymond James, “is that due to a major slowdown in buying we have seen a pronounced rise in the amount of uranium utilities will have to buy going-forward”.

Suffice to say that Raymond James is forecasting a rebound in the spot uranium price in 2014 following the 21% fall suffered in 2013.
 

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By Rudi Filapek-Vandyck

"Extremely quiet" is the operative label that stands out from industry consultant TradeTech's weekly update on the spot uranium market. The consultant only recorded four transactions for the week ending Friday, December 13th, with a total transactional value of 450,000 pounds U3O8.

Amidst a very quiet end-of-year spot market, TradeTech reports most buyers that are still active in this market are really looking for deliveries in 2014.

Among those buyers, TradeTech reports one non-US utility is currently evaluating offers for over 600,000 pounds U3O8 to be delivered in July 2014.

In terms of prices, TradeTech's Weekly U3O8 Spot Price Indicator remains at US$34.50 per pound U3O8, unchanged from last week, and down US$0.25 from the December 12 Daily U3O8 Spot Price Indicator.

The consultant's Mid-Term U3O8 Price Indicator has remained unchanged at US$39.00/oz. Ditto for the Long-Term U3O8 Price Indicator at US$50.00/oz.

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

US federal regulators have been turning the screws on global investment banks operating in the US, in more ways than one. Following on from accusations of manipulation in the energy market by JP Morgan’s commodity trading business, involving the bank buying and storing volumes of physical crude, further accusations were made that various US investment banks were manipulating base metals markets through the warehousing of physical metal.

In short, the US regulators are moving to ban investment banks from physical commodity warehousing as part of their commodity derivatives businesses. The first bank to respond to this move in the uranium market was Goldman Sachs, which last month announced it was putting its uranium trading business, and physical inventories held, up for sale. Last week Deutsche Bank announced it was looking to scale back activities in physical energy and metal markets.

Deutsche will be exiting uranium trading, and industry consultant TradeTech believes uncertainty regarding the stability of the intermediary demand into the new year is impacting on spot market activity. Last month holders of uranium inventories started to offload ahead of year-end, but news of various supply-side developments (the end of the Russia-US warhead agreement, the mothballing of the Honeymoon mine, Kazakhstan’s expansion curtailment, cost cutting from major miners etc) encouraged the sellers to step back and allow the buyers to play the chasing game. The result was an apparent change in spot uranium’s fortunes and a possible bottom having been seen. But that recovery has proven short-lived.

Sellers looking to square positions ahead of year-end became aggressive again last week, TradeTech reports. Concern over the loss of investment bank intermediary demand has hastened the sellers’ resolve. Eight transactions involving 900,000lbs of U3O8 equivalent were reported with utilities and speculators on the buy-side and producers and speculators on the sell-side.

TradeTech’s spot price indicator has fallen US$1.40 to US$34.50/lb. One transaction was reported in the term market, but TradeTech’s term price indicators remain unchanged at US$39.00/lb (mid) and US$50.00/lb (long).

Subsequent to last week's activity, Energy Resources of Australia's ((ERA)) Ranger mine suffered a burst leach tank which forced a production shutdown. Ranger is situated on the edge of the environmentally fragile Kakadu National Park, which complicates hopes of rapid restart of a mine representing 4% of 2013 global production. Niger has also announced it will now officially delay the development of its giant Imouraren mine. The supply side continues to respond to an environment of weak uranium prices.
 

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By Greg Peel

The Thanksgiving holiday interrupted activity in the uranium market last week and industry consultant TradeTech’s capacity to report transaction data, however the consultant has pulled back its spot price indicator by US35c to US$35.90/lb.

This slight easing in price belies what was otherwise a solid November for trading activity, with gradual weekly price rises reflecting several developments on the supply-side and renewed interest in speculative buying as a result. The month saw the Russian HEU supply agreement come to an end after a decade, Russia’s Rosatom putting its Honeymoon project in Australia on standby, Kazakhstan curtailing production expansion, Paladin Energy ((PDN)) and Cameco delaying expansion and introducing cost cutting measures, and Goldman Sachs exiting the uranium trading market.

There were 27 spot transactions concluded in November, TradeTech reports, for a total of 4.3mlbs of U3O8 equivalent. Supply-side news saw sellers backing off as the month progressed, resulting in a net US$1.65 monthly increase in the spot price despite last week’s fall.

Demand has also been slowly picking up in the term market, and seven transactions were concluded for delivery in 2015-20. Further contracts are under evaluation and TradeTech has seen fit to increase its mid-term price indicator by US$1.75 to US$39.00/lb.

The long-term indicator remains unchanged at US$50.00/lb.

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By Greg Peel

The US-Russian HEU agreement has now officially come to an end, which means no more Russian Cold War warheads being dismantled and their fuel being sold through the US. Once upon a time industry analysts looked ahead to 2013 as the year the spot uranium price might take off, so important was this supply source considered, but now that we have arrived, the story is much different.

Still, the end of HEU is apparently having some psychological effect on the market even if analysts no longer assume much significance. Despite the supply impact, uranium producers across the globe have begun deferring projects, shelving expansion plans and cutting back production in order to lift uranium prices to a level above breakeven for new supply. It’s a long way back.

Momentum from the previous two weeks carried into last week, industry consultant TradeTech reports, with seven transactions totalling 1mlbs of U3O8 equivalent being conducted and the spot price ticking up further over the course of the week. While buyers were primarily traders, some utility demand was also noted.

The rush to place material before year-end appears to have now eased, and TradeTech’s spot price indicator is up US40c to US$36.25/lb.

Five transactions are also reported in the term market this week, involving deliveries in a range from 2015-2020. TradeTech’s term price indicators are unchanged at US$37.25/lb (mid) and US$50.00/lb (long).

US investment bank Goldman Sachs has been an intermediary player in the uranium market since 2009, offering mostly term delivery deals while exploiting the bank’s access to cheap funding. But no more. Goldman has decided to exit uranium and is looking to sell its trading book which currently holds US$200m of inventory and 75 forward contracts with 17 counterparties requiring delivery over the next five years, TradeTech reports.

Goldman’s exit coincides with US regulatory changes which have seen investment banks exiting the warehousing and trade of physical commodities including base metals and oil.

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By Greg Peel

Australia’s leading pure-play uranium miner, Paladin Energy ((PDN)), has been undertaking an extensive cost-cutting program. As a relative newcomer in Australia’s legacy uranium industry, Paladin suffers from a comparatively high cost base, made no easier by the fact the company’s two operating developments are in Namibia and Malawi. The company is also significantly geared.

Thus Paladin has been burning cash at current spot uranium prices. The company attempted to sell off a stake in its premier Langer Heinrich project, but found no buyers at an acceptable price. There followed a capital raising, but not to a level that offers a buffer against ongoing low uranium prices. Cost cutting has become essential.

Still in Australia, Russia’s state-owned Rosatom announced this week it was putting its Honeymoon uranium project in South Australia – one of only four government approved uranium mines in the country – on a standby setting, while halting further investment in uranium production worldwide.

Kazakhstan is the global swing producer of uranium, boasting a level of resource that requires production volume controls in order not to flood the market and kill the uranium price altogether. State-owned miner Kazatomprom has announced it will now curtail any expansion of production and maintain output at 2013 levels.

Cameco, Canada’s globally significant uranium producer, has also announced cost cutting.

Across the globe, the uranium supply side is being forced to respond to stubbornly weak uranium prices through project deferrals and shutdowns and general cost cutting. The response is potentially having some impact, given the spot uranium price has managed to tick up now for two weeks in a row.

The connection is not lost on industry consultant TradeTech, who further notes the US-Russian HEU supply agreement formally came to an end last week.

TradeTech reports a total of 900,000lbs of uranium changed hands in the spot market last week over seven transactions, with speculators moving into the buy-side and producers and intermediaries making up the sell-side. The result is a US75c increase in TradeTech’s spot price indicator over the week to US$35.85/lb. The previous week the price bounced US85c off a low of US$34.25/lb.

TradeTech’s term market price indicators remain unchanged at US$37.25/lb (mid) and US$50.00/lb (long).
 

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