By Greg Peel

As to whether last week saw some light at the end of the long, dark uranium tunnel last week is yet to be determined. Often in the post-Fukushima era we have seen the spot price rebound briefly off lows considered to be a line in the sand, only to suffer further drift-offs soon afterward. Once upon a time US$50/lb appeared to be an obvious floor, then 40 seemed ridiculous, until 35 was breached. Either way, last week industry consultant TradeTech’s spot price indicator rose US85c to US$35.10/lb.

October saw both traders and producers eager to offload unwanted inventories ahead of year-end. There has been plenty of material hanging over the market for some time, but until last month the sellers were hopeful of buying interest appearing at lower prices. Yet when that interest faded away, the sellers decided to bite the bullet, sending the spot price down US75c over the month.

Last week those eager sellers found buyers. Indeed, as the week progressed renewed buying interest saw prices increase and sellers with larger quantities back off, TradeTech reports. Seven transactions totalling 1mlbs of U3O8 equivalent were completed with both utilities and traders on the buy-side. Prices rose steadily over the week.

There were no transactions completed in the term markets last week. TradeTech’s term price indicators remain unchanged at US$37.25/lb (mid) and US$50.00/lb (long).

Floor price or head fake? Cash-burning producers can only pray.

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By Greg Peel

For a short while it appeared as if the month of October would see some renewed strength in the price of spot uranium. It was not to be, nevertheless, as producers and traders began entering the market mid-month to offload material they did not wish to hold at year-end.

Cheaper prices brought out utilities and other traders but there was not sufficient demand, industry consultant TradeTech reports, to offset the downward pressure on the spot price. October saw 26 transactions completed in the spot market totalling 2.6mlbs of U3O8 equivalent. Transaction prices varied over the month depending on delivery location, delivery schedule and timing of payment.

Perhaps one glimmer of hope for uranium producers is that prices for transactions involving delivery before year-end were below prices for delivery in 2014.

TradeTech’s spot uranium price indicator closed the month at US$34.25/lb, down US75c from end-September. Four transactions were completed in the term market in October, and prices negotiated have forced TradeTech to lower its mid and long-term price indicators. The mid-term price falls US75c to US$37.25/lb and the long-term price falls US$1.00 to US$50.00/lb.

Last week closed on the first of November and there was no change to TradeTech’s US$34.25/lb spot price, which is down US60c from the week before. The week saw eight transactions totalling 800,000/lbs of U3O8 equivalent. As the week came to a close, sellers eased back their aggression, Trade Tech reports, allowing prices to stabilise.

Perhaps once producers and traders holding excess material have cleared the decks for year-end books-close the uranium price can find some fresh support in 2014. There was some good news last week, with Korea restarting one of the six of its 23 reactors that were shut down on safety concerns two months ago. With winter approaching, Korea is facing the potential of power shortages. Yet for uranium producers, many of them burning cash at current price levels, the fundamental hope is that 2014 will be the year in which Japan decides the cost of importing fossil fuels is too big a hit on an economy the government is trying to revive, and that the country’s reactors must be restarted sooner rather than later.

So far, no news.
 

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By Greg Peel

A month ago there appeared to be some building interest from buyers in the short-term uranium market, and sellers were thus encouraged to hang back rather than let product go at low prices. But a hoped for rally in the uranium spot price failed to materialise, with one big order withdrawn and remaining orders failing to satisfy all sellers. The week before last, the spot market went ominously quiet. Last week, the sellers caved.

Industry consultant TradeTech reports six transactions in the spot market last week totalling 700,000lbs of U3O8 equivalent. Traders and utilities on the buy-side were happy to let the sellers close the gap, with both traders and producers looking to dispose of product ahead of year end. As a result, TradeTech’s spot price indicator fell US40c to US$34.85/lb.

One transaction was concluded in the term market last week, TradeTech reports, with a Russian producer contracting to supply first fuel for two new reactor units in China. There are various other contracts being evaluated by term buyers at present, but TradeTech’s term price indicators remain unchanged at US$38/lb (mid) and US$51/lb (long).

The world continues to await news on any escalated plans from Tokyo to restart Japan’s reactors, but with popular dissent still an issue it would not have helped the government’s cause that a magnitude 7.1 earthquake was registered off the east coast of Japan on October 25. The Fukushima plant suffered no further damage, but the quake was a reminder that aftershocks are expected to continue even this long after the 2011 disaster.

And to top things off, residents of a small Japanese island were preparing to evacuate late last week as Typhoon Francisco approached. The typhoon was ultimately downgraded, but not before TEPCO was forced to take additional precautions at Fukushima to prevent the possible overflow of accumulated radioactive water.

On the supply side, BHP Billiton ((BHP)) reported last week that uranium production at the world’s largest operating uranium mine, Olympic Dam, fell 6% in the September quarter due to lower grades and planned maintenance. Rival diversified miner Rio Tinto ((RIO)) had reported earlier that its quarterly uranium production fell 23%, largely as a result of the process of low grade stockpiles at majority-owned Energy Resources of Australia’s ((ERA)) Ranger mine, but also through lower production at the company’s Rossing mine in Namibia.

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By Greg Peel

It’s not what struggling uranium producers want to hear. The spot market has gone dead quiet. While this implies no great urgency for holders of material to offload, it also indicates no increase in interest from uranium consumers at these low price levels. Indeed, industry consultant TradeTech’s spot price indicator has remained unchanged since October 4 at US$35.25/lb. Price recoveries are usually preceded by a final capitulation sell-off. In other words, price volatility.

TradeTech reports only two transactions in the spot market last week, totalling 200,000lbs of U3O8. There were no transactions in the term markets, and TradeTech’s term price indicators remain unchanged at US$38/lb (mid) and US$51/lb (long).

Interestingly, yesterday Japan posted its fifteenth successive monthly trade deficit, a run not seen since 1979. As a major exporter, Japan should be posting surpluses. Japan did see some improvement in exports during the month, particularly to China, but on the other side of the ledger the levels of fossil fuel energy the country has been forced to import is ensuring ongoing deficits. Yet still there is little word from the Japanese government regarding policy on the restart of the country’s nuclear reactors.

Japanese reactor restarts remain the swing factor for the global uranium industry.

There was positive news out of the UK during the week, TradeTech reports, with the UK apparently set to move ahead on two new reactors at the Hinkley Point site. Meanwhile, Canadian uranium companies have been in the spotlight, with Uranium One’s major shareholder, Russian state-owned Atomredmetzoloto (trying saying that quickly), moving to buy out the company and take it private, and Australia’s Toro Energy ((TOE)) moving forward with its acquisition of the Lake Maitland project in WA from Mega Uranium.

Low uranium prices are offering up industry consolidation.
 

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By Greg Peel

Olympic Dam is Australia’s largest uranium source but outside of the diversified resource conglomerate that is owner BHP Billiton, Australia’s two “big” pure-play uranium producers are Energy Resources of Australia ((ERA)), operating in the Northern Territory and Paladin Energy ((PDN)) operating in Namibia.

ERA has become basically a binary trade as an investment stock. Having been devastated by floods over past years, ERA’s sole Ranger Mine has been undergoing rehabilitation ever since above ground. That rehab is ahead of time and budget, but ERA’s fortunes depend entirely on whether or not the company decides to proceed with the Ranger Deeps underground mine. If so, well and good, if not, goodnight. In the meantime ERA is simply processing stockpiled ore.

The story is different for Paladin. Once the great Australian uranium hope, Paladin is continuing to burn cash at current uranium prices. The company’s latest quarterly production report showed prices received above spot, but lower than forecast production due to an extended maintenance shutdown at the Kayekalera development. Having already raised fresh funding, Paladin can only pray for a rebound in uranium prices sooner rather than later.

There is little reason for Paladin to feel confident. At the International Uranium Fuel Seminar held in Texas last week, the tone was less than optimistic for uranium sellers, industry consultant TradeTech reports. The international uranium market is currently in balance on a demand-supply basis, despite the Russian HEU agreement coming to a conclusion. Japanese reactor restarts remain the swing factor, but even then there is no great expectation of a significant price rebound given any price improvement will only be met with increased production.

A total of four transactions totalling 400,000 pounds were concluded in the spot market last week, TradeTech reports, and the year to date spot transactions total of 32.2mlbs is ahead of the 23.8mlbs booked by this time last year. Yet there has been little joy in pricing terms, with the consultant’s weekly spot price indicator unchanged on US$35.25/lb.

One US utility looking for 1.3mlbs in the term market selected a supplier last week, and several other term buyers are evaluating offers. The term market is more active than the spot market at present, but TradeTech’s price indicators remain at $38/lb (mid) and US$51/lb (long).

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By Greg Peel

Activity in spot uranium remains limited while term market interest is building. The uranium term market is what we might call the “real” market, featuring global nuclear utilities arranging delivery contracts over periods of time on the buy-side and actual producers of uranium on the sell-side. Such contracts are tendered and negotiated and things move slowly. When you are looking for, say, five years’ worth of U3O8 supply, there’s no real need to rush.

The spot market, on the other hand, is the forum for utilities to jump in to cover inventory shortfalls or for producers to cover shortfalls on contract obligations. To do so requires speculators in the market – uranium traders and hedge fund commodity investors – to offer up liquidity as they try to exploit the short-term needs of the “real” players. When the uranium market is “hot”, as it was in 2006 for example, the spot market becomes a hot bed of speculation and liquidity. When it is “cold” has it has been post Fukushima, no one much wants to play.

Last week three utilities and two intermediaries concluded spot purchases totalling around 600,000lbs of U3O8 equivalent, industry consultant TradeTech reports. TradeTech’s spot price indicator has been range-trading of late and having fallen US25c the week before, last week the indicative price rose US25c to US$35.25/lb. While prices under US$40 offer up doldrum territory for the commodity, sellers are reluctant to be too aggressive given the balance of apparent supply in the term market.

New demand continues to emerge for term supply contracts, TradeTech reports. Three global utilities are currently evaluating U3O8 delivery offers, one for 1.3mlbs in 2016, one for 1mlbs in 2015-19, and one for 1.2mlbs over a six-year period. Another utility is seeking 900,000lbs via UF6 or highly enriched product for 2015-20. It’s not if the demand isn’t there.

It’s just that no one is in a hurry. TradeTech’s term price indicators remain unchanged at US$38/lb (mid) and US$51/lb (long).

Meanwhile, Australian producer Paladin Energy ((PDN)) last week updated the market on the cost-cutting program it announced a year ago. Costs at the company’s Namibian operations are to be reduced by 25% and 22% at Langer Heinrich and Kayelekera respectively, with salaries for the board also to fall by 10%.

Analysts at UBS applaud the cuts but note such expectation was already priced in, with spot uranium doldrums and subsequent cash burn remaining the company’s critical issue.
 

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By Greg Peel

The short burst of enthusiasm witnessed on the spot uranium market two weeks ago ran out of legs last week once the handful of prospective buyers were filled on their orders and left, industry consultant TradeTech reports. While further interested parties, including utilities and traders, entered the market last week, sellers, including producers and traders, were quick to respond.

The result was six transactions totalling 700,000lbs of U3O8 equivalent but a drop in TradeTech’s spot price indicator of US25c to US$35.00/lb. Tradetech’s term price indicators remain steady at US$38.00/lb (mid) and US$53.00/lb (long).

The week ended on a slightly brighter note, nevertheless, when the Tokyo Power Company requested safety inspections ahead of the restart of units 6 and 7 at its Kashiwazaki-Kariwa plant 200k up the coast from the capital. The seven-unit K-K nuclear plant is the world’s largest, and units 6 and 7 the world’s newest reactors.

The restart of Japan’s reactors is pivotal to rebooting the global uranium market, most believe, and thus to stronger spot pricing. The K-K units bring to fourteen the number in Japan on the pending restart list. The market had been hoping for swifter action when the new, pro-nuclear Abe government was elected late last year, but has been disappointed to date with the ongoing delay.

BA-Merrill Lynch is one broker forced to reduce its 2013-15 forecast uranium prices based on this delay. Merrills has downgraded its 2014 spot forecast by 24% to US$47.50/lb, expecting 7 million pound surplus of U3O8 at the end of 2014 rather than the 14mlb deficit earlier forecast.

Yet while the Merrills analysts are responding only to the Japanese delay, peers at Macquarie now believe the uranium market will remain in surplus throughout their five-year forecast period, Japanese restarts or no Japanese restarts. Macquarie has also swiftly dismissed the end of the US-Russian HEU supply agreement as offering little impact as well.

One issue for Macquarie is the difference between the growing demand for nuclear capacity, which is assumed will drive growing demand for uranium, and actual demand for uranium. Various global regulatory hurdles, including post-Fukushima regulation tightening, have delayed reactor projects, the analysts note. Hence while pending start-ups might add to incremental global nuclear capacity, the start-up uranium required was actually purchased some time ago.

Note that reactors require a significant level of uranium to start them up but comparatively little to keep them going.

Beyond that disappointing truth, uranium inventories across all major consumers sit at record highs, Macquarie notes. In Japan alone, the 7500 tonnes of material accumulated since the Fukushima accident is enough to cover the needs of the twelve reactors having applied for a restart (which has now grown to fourteen). In the US, inventories sit near levels representing two years of consumption, the highest level in decades.

At least the market can be relieved that China, which has the most number of reactors planned or in development, just keeps on buying uranium. Indeed, year to date 2013 imports exceed the equivalent 2014 period by four times, Macquarie exclaims.

But as has long been the case, China does not operate under a system of buying materials when they are needed and not when they are not. The many state-owned enterprises ensure China the luxury of stockpiling material when prices are low and then de-stocking when prices rise. Hence China is no longer likely to be a price supporter (as was the case in the noughties commodity boom), rather a price taker. And on the upside, China is an effective price capper once stocking turns to de-stocking.

Macquarie nevertheless admits there hardly is an explosion occurring on the uranium supply side either. Kazakhstan is providing the only meaningful growth among major producing regions, while Areva’s operations in Niger are being disrupted, Energy Resources of Australia’s ((ERA)) Ranger mine is currently only running down stockpiles and Cameco’s huge Cigar Lake development in Canada has yet again been delayed.

But Cigar Lake will eventually ramp up one way or the other, Macquarie warns. And while the end of the HEU agreement means the end of years of dismantled warhead supply, the hole left will only prove incremental, say the analysts, given supply of alternative Russian secondary material and growing supplies from global reprocessing.

The good news is that Macquarie suggests the global uranium surplus will indeed narrow over the next couple of years given an entry cost level of some US$40-45/lb for new mined supply. But any price rebound will be slow and gradual and then capped at around US$60/lb (2013 dollars), as this price is enough for postponed mining projects, mostly in Africa, to fire up once more.

Macquarie’s dour predictions contradict the greater level of medium to long term enthusiasm suggested by industry consultant UxC’s survey of attendees at the World Nuclear Association Annual Symposium, held last month, which suggested belief in prices down the track well in excess of US$60/lb.

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