Tag Archives: Uranium

article 3 months old

Uranium Week: Fleeting Hope

The first jump in the uranium spot price since July proved fleeting. We’re back where we started.

By Greg Peel

Three transactions were reported in the uranium term markets last week totalling 1.5mlbs U3O8 equivalent. Further deals are currently being considered.

Indeed, a number of utilities are considering mid and long term purchases, industry consultant TradeTech reports, and are expected to enter the market in the coming months. Activity is expected to gain momentum in the fourth quarter.

But this is exactly where we were in the fourth quarter of 2015. Then, too, sellers of uranium were pinning their hopes on an expected pick-up in utility demand. Yet the spot uranium price is now 35% lower than it was at the beginning of 2016. That demand has failed to materialise in any significant way. Relatively well stocked utilities have not felt it necessary to chase prices higher. Rather, they have been happy to watch prices fall further.

They have fallen further due to the need to sell becoming increasingly urgent. Spot prices are now below the cost of production for many producers. While consensus suggests uranium prices will eventually move higher, a lot of that assumption has to do with more production being shut down for cash burn reasons. A good deal of production has already been mothballed pending price improvement.

Which puts the uranium market in a similar position to the oil market. It is generally agreed that WTI prices above US$50/bbl and especially towards US$60/bbl will be met with mothballed US shale oil production being restarted, thus once again putting pressure on prices.

In the meantime, sellers of uranium are forced to take what prices they can get in the spot market. Term market demand may be on the increase but this is not translating through to spot demand of any substance. TradeTech reports four transactions totalling 550,000lbs U3O8 equivalent changed hands in the spot market last week.

The week before saw a heartening bounce in Tradetech’s weekly spot price indicator – the first since July -- from a low of US$22.25/lb to US$22.90/lb on four transactions totalling 500,000lbs. Last week that price fall right back down again to US$22.25/lb.

TradeTech’s term price indicators are steady at US$23.70/lb and US$37.00/lb.

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Uranium Week: First Price Rise Since July

The spot uranium price actually moved up last week for the first time in over two months.

By Greg Peel

The pace of Japanese nuclear reactor restarts remains as glacial as ever. The count had reached three, in the five years since the Fukushima disaster, until safety concerns raised by the new governor of Kagoshima threatened the closure of the first reactor to be restarted, Kyushu Electric’s Sendia unit 1.

A court battle was averted given Sendai 1 was due for a regular maintenance shutdown anyway, which will last for several months. During the shutdown the reactor will be subject to “special inspections” to satisfy the new governor.

Sendai unit 2 will also be shut down for maintenance beginning in December, at which point Shikoku Electric’s Ikata unit 3 will be the only reactor in operation. Kansai Electric’s Mihama unit 3 is moving closer to being the fourth reactor to restart but there are several design and safety approval hoops Kansai must jump through before that might become a reality.

Prior to Fukushima Japan boasted 54 operating reactors.

The restart of Japanese reactors was for a while considered the major swing factor for the global uranium industry, but producers have long given up backing that horse. With the spot uranium price wallowing under US$30/lb it is assumed the only likely driver of any price recovery will be reduced supply. Demand is expected to be stronger at such lower prices, but not in any urgent manner.

Following the 8% fall in the spot price the week before, and -14% in September, there was some interest generated from the demand side last week. This prompted sellers who appeared rather desperate the week before to back off a bit and wind back prices. Industry consultant TradeTech reports four transactions in the spot market last week totalling 500,000lbs U3O8 equivalent.

TradeTech’s weekly spot price indicator has risen US65c to US$22.90/lb. This represents the first weekly price rise since end-July, following nine straight weeks of flat or falling prices.

While several utilities are presently evaluating purchases in uranium term markets, no transactions were reported last week. TradeTech’s term price indicators remain at US$23.70/lb (mid) and US$37.00/lb (long).

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Uranium Week: From Bad To Worse

Last week saw the uranium spot price fall a further 8%, to mark a 14% fall in the month of September.

By Greg Peel

There was good news for the global uranium industry in September. The new government in the UK has approved construction of the Hinkley Point nuclear facility, having initially delayed approval given Theresa May’s sudden ascension to prime minister post the Brexit vote. And the Kazakhstan government announced that given current market conditions, the world’s biggest holder of uranium reserves would not increase production for the time being.

But that’s where it ends.

Having fallen US$1.00/lb over the first three weeks of September, industry consultant TradeTech’s uranium spot price indicator fell a further US$2.00/lb last week to US$22.25/lb. That’s an 8% fall in a week and a 14% fall for the month. The spot price has fallen 35% in 2016 and 67% since Fukushima in 2011.

The underlying story is little changed. Despite some increased buying activity in term markets, utilities across the globe remain relatively well stocked with material and therefore are in no real rush to make purchases. Only bargain prices are providing any incentive.

And to that end, there is no reason to jump at current prices given sellers remain the disadvantaged party – well stocked with material they’d like to get rid of in a hurry, be they producers or intermediaries. UBS estimates the current average cost of global uranium production is around US$30/lb, hence the production industry as a whole is presently burning cash, placing many sellers in financial difficulty.

The average cost of restoring idled production is greater, and the price required to incentivise new production much greater.

UBS thus believes the spot price cannot remain under US$30/lb for much longer. Further production shutdowns and abandonments must eventuate. There is no sign of weakness abating as yet, however.

September saw 3.5mlbs U3O8 equivalent change hands in the uranium spot market in 23 transactions. Of that volume, 800,000/lbs changed hands on the last day of the month, and the quarter, alone, explaining why such a sharp fall in price over the week.

Term markets saw four transactions concluded over the month totalling 4.5mlbs U3O8 equivalent. Alongside the weekly spot price indicator, TradeTech’s monthly term price indicators have also tumbled once more. The consultant’s mid-term indicator is down US$3.00 to US$23.70/lb and the long-term indicator is down US$1.00 to US$37.00/lb.

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Uranium Week: Buyers Having No Impact

Spot uranium demand from utilities has picked up of late but sellers are the more urgent party, leading to further price falls.

By Greg Peel

Last week the International Atomic Energy Agency released its latest projections suggesting global nuclear power supply could grow by as much as 56% to 2030, which would represent an unchanged level within the energy mix. Asia is the critical centre of growth. China plans to build sixty new reactors in the next ten years.

There will be no contribution to growth from the US. Last week the US Energy Information Agency released its own projections to 2040 suggesting the number of new reactor start-ups and extended licences for existing reactors over the period will be more than offset by the number of reactor retirements. Competition from cheap gas-fired electricity generation and subsidised renewable power sources will make a number of older reactors commercially unviable.

In the more immediate future, there is still an expectation demand from utilities for medium and long term delivery contracts is set to increase and at present, spot market demand has clearly ticked up as utilities look to exploit historically low prices. The spot uranium price is at its lowest level since 2005 and for a longer period in real price terms. Yet increased demand is only serving to spark uranium producers and intermediaries into a race to unload product at whatever price.

“The explanation for this can be attributed to a number of factors,” industry consultant TradeTech said last week, “as varied as the sellers in the market. Increasing financial pressure and the need to generate cash, year-end sales objectives, and utilities that are generally well covered in the near term, have left sellers scrambling to lock in business. Sellers acknowledge that while significant demand is expected to emerge shortly in the mid- and longer-term markets, they see little spot demand and must capture sales opportunities as they arise”.

The result is one of increased demand forcing prices lower. Five transactions were concluded in the spot market last week, totalling less than 500,000lbs U3O8 equivalent. Desperate sellers drove TradeTech’s weekly spot price indicator another US50c lower to US$24.25/lb.

One transaction was reported in term markets last week, for 1mlbs U3O8 over a five-year period. TradeTech’s term price indicators remain unchanged at US$26.70/lb (mid) and US$38.00/lb (long).

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Uranium Week: Desperation

Sellers stepped up the pace last week, sending the spot uranium price down yet again.

By Greg Peel

The global nuclear industry plans to build 1000GW of new reactor capacity by 2050, said the World Nuclear Association’s Agneta Rising in her opening address to this year’s annual symposium in London last week. Prior to 2014, less than 5GW of capacity was typically added per year. But 5GW was added in 2014 and 10GW was added in 2015.

The plan now is to build 10GW per year over 2016-20, 25GW over 2021-25 and 33GW over 2026-50. This should be music to the ears of uranium producers but if last week’s uranium spot market trading is anything to go by, no one was listening.

Typically when market participants gather each year for the WNA symposium, activity in uranium markets quietens down. Not so this year. While utilities have become more active in the market of late, sellers have become increasingly desperate. Last week saw 900,000lbs U3O8 equivalent change hands in five transactions, industry consultant TradeTech reports, with half that volume traded in the final two days.

TradeTech’s weekly spot price indicator has fallen US50c to US$24.75/lb. To date, the spot price has fallen 4% over a month, 28% in 2016 and 63% since the Fukushima disaster in 2011.

While there are a number of contract requests yet to be filled in term uranium markets, no term transactions were concluded last week. TradeTech’s term price indicators remain unchanged on US$26.70/lb (mid) and US$38.00/lb (long).

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Uranium Week: Struggling For Traction

Uranium prices remain persistently low while sellers who need to offload product continue to do so.

By Greg Peel

Industry consultant TradeTech’s weekly uranium spot price indicator finished the month of August at US$25.25/lb before ticking back up to US$25.50/lb by the Friday of that week. Last week the price ticked down again to US$25.25/lb by week’s end. FNArena’s published spot price thus suggests no change at that price.

Sellers of uranium currently fall into two camps, TradeTech suggests. On the one hand there are those who are not keen to chase ever lower prices, believing utility demand will quietly pick up. Moreover, there is more than one uranium market analyst suggesting spot prices cannot remain below the average cost of production, as it is now, for too much longer. Eventually the supply-side will have to surrender. To a greater extent than it already has.

On the other hand there are those sellers who simply need to offload product, and as such are prone to jumping on any little tick-up in price. Put the two together and we can see why the spot price has ticked up and back down again in the last couple of weeks.

Presumably at some point the desperate sellers will be cleaned out, but there is no sign as yet. There is some evidence of building utility demand, but nothing to quite write home about. Two utilities entered the market last week – one seeking 180,000lbs spot delivery and the other seeking 10% of its requirement for 2019-22 delivery.

The spot buyer was satisfied and three other spot transactions were concluded last week totalling 300,000lbs U3O8 equivalent.

There is no change to TradeTech’s term price indicators since the end of August, which were set at US$26.70/lb (mid) and US$38.00/lb (long).

There was some interesting news out of Japan this week. Shikoku Electric’s Ikata unit 3 resumed operation last week as planned to be the third reactor to be restarted in Japan since the Fukushima disaster, but for the fact the local governor has requested a temporary shutdown to Kyushu Electric’s Sendai units 1 and 2, the first two reactors to be restarted.

Kyushu Electric has rejected the request. However it is not quite an act of revolutionary defiance on the part of the power company. While the governor called the rejection “very regrettable”, he did acknowledge both reactors are shortly scheduled for routine maintenance shutdowns of two months in duration.

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Uranium Week: Saudi Power

The world's biggest oil producer is looking to go nuclear with an extensive reactor building plan.

By Greg Peel

There is a tincture of irony in the news the world’s biggest producer of crude oil, Saudi Arabia, is planning an ambitious foray into nuclear power. The kingdom intends to construct sixteen commercial nuclear reactors over the next twenty years at a cost of US$100bn, with the first expected to come on line in 2022.

Saudi Arabia has suffered in recent years from the oil price plunge, impacting heavily on the government’s budget. Electricity in the country is almost entirely produced from oil and gas, feeding the country’s greatest consumer of electricity, the oil and gas industry. But in a yet another ironic twist, the country has become the fastest consumer of electricity in the Middle East and as such, is at risk of falling short of production capacity.

Enter nuclear power. Unsurprisingly, Russia is keen to be involved in the construction of the planned reactors and China does not want to miss out either.

At least the price of uranium is just as cheap at present as that of oil, in relative terms. There would thus be some balance of uranium imports against oil exports were Saudi Arabia to start stockpiling the fuel needed to start up reactors sooner rather than later.

There was certainly no joy for uranium producers in August. The spot price continued to slide as 28 transactions totalling 3.8mlbs U3O8 equivalent changed hands over the course of the month. Industry consultant TradeTech’s spot price indicator ended the month at US$25.25/lb, down from US$25.90 at end-July.

Last week in particular, 600,000lbs U3O8 equivalent were traded at successively lower prices. On a weekly basis, TradeTech’s spot price of US$25.25 represents a US50c drop.

The good news is activity in uranium term markets is expected to pick up in September and beyond as several utilities consider medium and long term delivery contracts. Mind you, if uranium producers earned a dollar every time the market expected term demand to pick up, but was disappointed, they’d all be back in profit.

Indeed, as TradeTech continues to point out, demand remains “highly discretionary”. And on the other side of the fence, sellers are competing aggressively.

TradeTech has lowered its medium term price indicator by US70c to US$26.70/lb. The consultant’s long term price indicator remains unchanged at US$38.00/lb.

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Uranium Week: Paladin Capitulates

In order to avoid further cash burn ahead of a debt repayment obligation, Paladin Energy has suspended production at its flagship mine.

By Greg Peel

Activity in the spot uranium market picked up slightly last week after a quiet prior week. Transactions totalled 600,000lbs but there is little sign of commitment on either the buy or sell side at present, industry consultant TradeTech reports.

TradeTech’s weekly spot price indicator remains unchanged at US$25.75/lb. There were no transactions reported in term markets. The consultant’s term price indicators remain unchanged at US$27.40/lb (mid) and US$38.00/lb (long).

One step forward and two steps back. Two weeks ago Shikoku Electric’s Ikata unit 3 became the third Japanese reactor to restart operation, five years after the Fukushima disaster. Last week the newly elected governor of the Kagoshima prefecture requested the temporary shutdown of Kyushu Electric’s Sendai units 1 and 2 – the first two reactors to have been restarted.

It was good news for leading Australian uranium producer Paladin Energy ((PDN)) when the company declared an FY16 underlying profit of US$25m last week, compared with a loss of US$21m the year before. But with the spot uranium price continuing to wallow and debt issues still lingering for Paladin, the company has now taken drastic steps.

Mining at Paladin’s flagship Langer Heinrich mine in Namibia is to be suspended, pending uranium price improvement. The company will process low grade ore stockpiles in the interim. While this decision results in a drop in production, importantly it results in a sharp drop in operating costs and hence cash burn.

If Langer Heinrich had continued in a sub-US$30 uranium price world Paladin would have likely fallen short of its US$212m convertible bond payment obligation due in April. The cost reduction and proceeds from asset sales means Paladin should just get over the line, albeit the US$175m expected from the sale of a 24% stake in Langer Heinrich to China’s CNNC is subject to a non-binding arrangement, UBS points out.

UBS suggests the uranium industry cannot sustain operations at spot prices below US$30/lb for more than a year. On that basis the broker expects further production suspensions and closures and therefore a higher price going forward. Morgan Stanley has just lowered its medium term spot price forecast by 27% to US$31/lb, noting this is still some 24% above current spot.

Morgan Stanley expects Langer Heinrich to remain suspended for two years, by which time the broker expects a spot price of US$40/lb. This suggests Paladin is doing the right thing and will likely make good on its 2017 payment ahead of its next payment obligation in 2020.

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Uranium Week: Unchanged

The spot uranium market saw a very quiet week as buyers and sellers stood their ground, leaving prices unchanged.

By Greg Peel

Were Energy Resources of Australia’s ((ERA)) proposed Ranger 3 Deeps underground project at the company’s mine in the Northern Territory to go ahead from FY18, and assuming the current mine lease is extended beyond a current 2021, stockbroker UBS values the stock at A$2.34.

Were Ranger 3 Deeps not to go ahead the broker values ERA at A$0.10. The stock is currently trading around A$0.35, implying around a 10% chance is being priced in by the market.

Last year ERA decided not to progress the project to final feasibility study until such time as uranium prices recovered and the mining lease could be extended. This implies management retains a hope of one day going ahead but due to the project’s economic challenges, two-thirds majority ERA shareholder Rio Tinto ((RIO)) does not support any further development. Moreover, the local indigenous community, from whom approval is required, does not support a mine lease extension.

UBS does not believe Ranger 3 Deeps will proceed.

The broker does believe ERA will have enough cash to see the existing Ranger above-ground mine through to end of mine life, including required rehabilitation, assuming ERA continues to receive a premium on the broker’s forecast uranium price due to long dated contracts.

The broker does not believe the spot uranium price can be sustained at under US$30/lb for longer than a year. The standard measure of C1 cash costs reported by current producers appears to be low enough but does not take into account additional costs such as royalties, distribution costs and debt servicing costs. Rio Tinto and Canada’s Cameco between them produce 23% of current world supply and both companies reported all-in sustaining costs in the first half of 2016 in excess of US$30/lb, UBS notes.

Industry consultant TradeTech’s weekly spot price indicator is unchanged at US$27.75/lb following a very quiet week, in which buyers and sellers mostly held their ground. Only four transactions were completed in the spot market totalling 400,000/lbs U3O8 equivalent.

No transactions were recorded in the uranium term markets. TradeTech’s term price indicators are unchanged at US$27.40/lb (mid) and US$38.00/lb (long).  

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Uranium Week: And Then There Were Three

The Ikata unit 3 reactor was restarted last week, bringing the number of currently operational reactors in Japan to three.

By Greg Peel

There have actually been five Japanese reactors restarted since the 2011 Fukushima disaster, but Takahama units 3 and 4 had to shut down again due to a court injunction issued against their operation. Sendai units 1 and 2 were the first to be restarted and remain in operation, while last week saw Shikoku Electric Co’s Ikata unit 3 restarted, bringing the current operating total to three.

To say the process of restart is painfully slow is more than an understatement. Most of the pain is being felt by the Japanese economy, given the high cost of importing fossil fuel alternatives for power generation. But the pain is being shared by global uranium producers, who never presumed it would take this long to get one of the world’s greatest consumers of uranium back up and running.

And still the count is three, out of a prior forty-odd.

In other incrementally good news last week, another major consumer of uranium – the US – is hopeful that the state of Illinois will follow in the footsteps of the state of New York in providing subsidy deals that will save the state’s struggling legacy reactors. The US federal government is eager to ensure nuclear energy remains a significant component of the push towards “greener” power generation, but the sheer cheapness of gas and a preference in subsidies for emission-free renewables has left older nuclear reactors out in the cold.

These demand-side developments did little to fire up the uranium market last week. The prior week saw market confusion as a US utility sought suppliers for the September delivery of anywhere between 100,000 and 1.2 million pounds of U3O8 equivalent, which hardly provides a clear picture on spot market demand. Last week saw that utility satisfied, but there is no word on the final volume.

Further utility demand is in the wings, but not yet prepared to step up to pay offer prices, industry consultant TradeTech notes. Nor are sellers too keen to hit lower bids. Hence only four transactions totalling 400,000lbs U3O8 equivalent were concluded in the spot market last week. Despite the stand-off, TradeTech’s weekly spot price indicator has fallen US65c to US$25.75/lb.

In the term market, a US utility selected a supplier for 800,000lbs U3O8 equivalent over 2018-20 last week and a small volume was contracted in the long term market. Another utility awaits offers for 2.6mlbs to be delivered over 2019-25 and further requests for term market contracts are expected to be made shortly.

TradeTech’s term market price indicators remain unchanged at US$27.40/lb (mid) and US$38.00/lb (long).

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