By Greg Peel

Despite a widely held belief of commodities analysts that the global demand-supply balance for uranium into the medium term points to higher prices, spot uranium has continued to slide away on lack of genuine buying interest, dragging medium and longer term price indicators down with it. Spot uranium endured its worst month in October since March 2011, in the wake of Fukushima.

Since Fukushima, commentators had come to assume US$50/lb provided a floor level for spot pricing, below which genuine consumers (utilities) are happy to accumulate inventories. However these past couple of months those utilities are missing in action, while those on the supply side needing to sell (mostly traders and speculators) have become increasingly anxious. To that end, light interest on the buy-side has allowed the spot price to tumble 13% over the course of October, down US$5.50 to US$41.00/lb by October 31. Only 5.4mlbs traded hands in 29 transactions, notes industry consultant TradeTech, as buyers continued to back off.

The good news is that buyers did finally emerge right at the end of the month, perhaps seeing US$41 as the new US$50. As soon as they did, it was the sellers' turn to back off. Yet at month end it all went quiet again, such that TradeTech has dropped its spot price indicator for the week ending last Friday to US$40.75/lb, down US50c from a week earlier. Seven transactions were recorded for the week totalling 1.2mlbs.

Demand also weakened for mid-term contracts over October, with one deal transacted as Paladin Energy ((PDN)) sealed a large offtake deal with Eletrice de France. The impact of a plunging spot price has been felt in the mid-term market, such that TradeTech has dropped its mid-term price indicator by US$5.25 to US$45.00/lb. TradeTech has also subsequently moved its long-term price indicator down US$2.00 to US$59.00/lb.

Commodities analysts can rustle up a string of legitimate arguments as to why uranium prices should be trending higher. One day they might – maybe evenly rapidly – but not just yet it would seem.
 

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By Andrew Nelson

Let’s add up some numbers. The Megatons to Megawatts Program, the program that sees Russia convert uranium taken from Soviet era warheads and supply it to the US, is supplying around 50% of the US's uranium demand. Mining accounts for eight percent. The electricity for roughly one in ten American homes, businesses, schools and hospitals is generated by Megatons to Megawatts fuel.

The US nuclear reactor fleet required 55 million pounds of uranium to keep running in 2011, while the mined supply of uranium in the US in 2011 was about four million pounds. Megatons to Megawatts ends this year and mined supply certainly isn’t pacing itself to pick up the slack, given uranium prices that are becoming increasingly sub-economic for a growing number of producers.

And here’s another bit of news: China is set to approve a small number of nuclear power projects by 2015 in its push to steadily get back to a normal schedule of building nuclear power facilities. New plants are to be built based on the strictest global safety standards and conform to third-generation safety requirements, the Chinese government said.

Here’s the funny thing, there is absolutely no shortage of uranium in the ground. What is in short supply is mined uranium. Starting very soon, and continuing for at least as long as is needed to develop, permit and construct new uranium mines, there is going to be a big significant shortfall of uranium supply.

But that’s all tomorrow. Last week, uranium continued on its slow and steady march southward. Turnover was light, with just 500,000 pounds changing hands. The announcement from China did get plenty of play, but it still did little to inspire optimism about the prospect for an increase in near-term uranium demand.

Industry consultant TradeTech notes that market participants are increasingly hopeful the price may be approaching a bottom and are thus considering whether to enter the market.  Yet at the same time, buyers remain hesitant to commit to purchases until the price either stabilises or shows signs of going back up.

In the meantime, while sellers aren’t exactly falling over themselves to get stock out to the marketplace, they’re still being forced to lower offer prices to get deal done given there remains, for the time being, more than sufficient supply to soak of the currently low levels of spot demand.

By Friday, TradeTech’s Weekly U308 Spot Price Indicator was at US$43.00 per pound, down US$0.50 per pound from the week prior.

No transactions were reported last week on the term uranium market, although some new demand did emerge. TradeTech reports one US utility entered the market looking for offers for material to be delivered between 2014 and 2019. In the meantime, TradeTech’s Mid-Term U3 O 8 Price Indicator stayed put at US $50.25 per pound and the Long-Term Indicator stayed put at US $61.00 per pound.
 

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By Andrew Nelson

Uranium trading two weeks back saw the spot price plummet 5%, with increasingly cash poor and panicky sellers doing what they could to generate some volume. Last week was a little calmer and much busier, with buyers jumping in to take advantage of the rock bottom prices.

One could easily assume the calmer atmosphere last week had something to do with burned out market participants taking a working holiday in Florida to attend the International Uranium Fuel Seminar. And looking at the guest list it was obvious that the sellers were there in force. But the buyers; they we’re hanging out at the spot market, or so it seemed.

Industry consultant TradeTech reports that spot transaction volume surged last week, with just one non-US utility picking a preferred supplier for delivery of 1.8 million pounds U308 in enriched uranium product. If that wasn’t enough, there were still another four deals to be tallied, with market volume for the week adding up to 2.3 million pounds.

The sellers were, as always, producers and traders, with utilities and traders on the other side of the table. However, after the dust settled, demand levels were right back to where they were before: weak.

Maybe, just maybe, an inflexion point has been reached. While the majority of buyers are still hanging out for prices to drift even lower, it seemed that sellers last week finally started to hold firm, emboldened by the possible upswing in demand, and ceased to offer lower prices.

Also lending a bit of extra resolve to the sell side was news from China last week, with the nation’s central government drafting a US$12 billion plan to boost safety in the nuclear industry. TradeTech notes the preponderance of analyst commentary on the topic indicates the move should help pave the way for more nuclear plants to be built in China.

By the end of last week, TradeTech’s Weekly U3O8 was unchanged at US$43.50/lb.

The term uranium market was a different beast altogether last week. That is if you can call no transactions and no new demand a beast. There is one utility and two non-utilities out there kicking tyres, but by Friday, TradeTech’s weekly Mid-Term and Long-Term Price Indicators were flat at US$50.25/lb and US$61.00/lb respectively.

In other news, the loss of potential Australian uranium supply from BHP Billiton's ((BHP)) shelving of its giant Olympic Dam expansion project is being countered to some extent by the easing of government policy elsewhere in the country. In light of the federal government's decision to overturn a ban on uranium sales to India -- a non-signatory to the Nuclear Non-Proliferation Treaty -- the recently elected state government in Queensland has decided to overturn the 30-year state ban on uranium mining. Queensland's move mirrors a similar decision earlier by the Western Australian government, and a lifting of the ban on uranium exploration in New South Wales in February. In each state, Coalition state governments have replaced Labor governments over the past couple of years.

The news is heartening for significant Australian-based uranium miner Paladin Energy ((PDN)), which has sat on substantial Queensland deposits acquired through the takeover of Summit Resources some years ago, and which offer a balance to Paladin's Namibia-based operations.
 

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By Greg Peel

It had appeared for some time, after the first anniversary of Fukushima had passed (being the tsunami, not the ongoing “fallout”) that US$50/lb was pretty much a floor in the spot uranium price. With Japan's nuclear future on one week and off the next, the spot price has been quietly slipping just below the 50 mark over past weeks, however there was always the expectation that the “must have” buyers – those utilities with operational reactors who simply must buy fuel at some point – would see sub-50 as an attractive price at which to pick up supply.

They have in the past.

Utilities mostly buy their fuel on long-dated contractual supply deals, it must be said, but typically there is additional supply to pick up or, indirectly, producers need to cover contract shortfalls with spot purchases, and that activity is enough to keep the traders and speculators from trashing the market. Or, simply, cheap prices are a good bet, particularly for the Chinese who work on long restock/destock cycles.

But not this time. Last week the uranium market lost its bottle as sellers became anxious and buyers stepped aside. Industry consultant TradeTech reports a total of 800,000lbs of U3O8 equivalent changing hands over the week and achieved prices dropped steadily with each new transaction. When the dust settled on Friday, TradeTech's spot price indicator had fallen a total of US$2.25 from the prior week, or around 5%, to US$43.50/lb. It seems like Fukushima all over again.

TradeTech suspects the price fall may not reflect total disinterest from buyers but rather, as can often be the case in any spot market (see: iron ore), buyers were standing aside to let the sellers panic and offer even cheaper opportunities ahead. If that is true, such low prices may not last too long. However we do still have the issue of whether they will/whether they won't turn Japan's reactors back on.

Having decided they would, and then decided they wouldn't, last week the Japanese decided to conduct some more seismic testing ahead of restarts next year, That is until they change their minds again, one presumes. It's not the sort of environment to encourage speculative spot uranium buying nor one in which operating utilities feel compelled to snatch up cheap yellow cake.

Unsurprisingly, no deals were transacted in the term market last week and TradeTech's term price indicators remain at US$50.25/lb (medium) and US$61.00/lb (long).

Australian-listed Toro Energy ((TOE)) -- no bull -- picked a bad week to announce approval had been granted by the Western Australian government for the company to proceed with its Wiluna uranium project in Western Australia, estimated to be capable of 1.8mlbs of U3O8 production per annum. Since a Coalition government took office from a Labor government in the state three years ago, the incumbent has spent that time conducting rigorous assessments and inviting public debate on the uranium mining issue.

Toro must now await corresponding approval from the federal government which has been conducting its own assessment over the same timeframe. Given former anti-nuclear activist turned government minister Peter Garrett was given the job of announcing the new Four Mile project go-ahead in South Australia a couple of years back, one presumes this won't be an issue.

Meanwhile, on the global front, any additional supply offered down the track from Toro will be offset by the decision from Areva to follow in the footsteps of BHP Billiton ((BHP)) and delay further ramp-up of its Trekkopje mine in Namibia due to too-low uranium pricing. BHP has shelved its Olympic Dam project for the foreseeable future on falling prices and rising costs and Areva suggests the Trekkopje project is not viable under a uranium price of US$57/lb, which currently seems like a long way away.

Despite all of the above, resource analysts are still largely of the opinion the uranium price must rise by next year given the aforementioned curtailing of significant future supply projects, the ongoing nuclear push from China, and the reality that Japan will eventually admit it can't live without nuclear power.
 

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By Andrew Nelson

Will they, or won’t they?

This is the question that has been holding the uranium market in thrall for over a month now. “They” refers to the Japanese Government and “will they or wont they” refers to the plan to wind down Japan’s nuclear program. This unanswered question now has uranium spot sellers in full retreat.

After announcing the restart of reactors back in June, the Japanese government said last month it would look to phase out nuclear power by 2040. As has been covered in this forum before, it was seen as a pie in the sky statement backed up by little in the way of practical thinking, or so thought many commentators. In fact, the prevailing opinion is that existing reactors will still need to be restarted to simply keep up with the nation’s electricity demand. Yet since the announcement, the spot uranium price has started marching backwards once again.

Last week JP Morgan joined the choir, lamenting the seeming indecision in Japan and the fact that despite a few little blips, Chinese utilities are still not importing uranium. Just like everyone else that holds an opinion on the topic, the broker believes prices will ultimately have to move higher given ever decreasing production will start putting the clamps on supply.

And right along with an increasing amount of sellers, JP Morgan has buckled under the pressure of the seemingly obvious; uranium isn’t going to jump to US$100/lb tomorrow, or probably even the day after. This realisation has spurred the broker to take a closer look at its theories on uranium supply and demand. This fresh look has the broker now thinking that there will probably be a delay in the arrival of the tight market conditions it has been expecting.

The change in view saw the broker lower its uranium price forecasts for 2012-14 on Friday.  The new price forecasts are for US$49/lb in CY2012, US$55/lb in CY2013 and US$80/lb in CY2014.

The lowered uranium price forecasts, of course, take a toll on the broker’s earnings estimates and valuations for both Paladin ((PDN)) and ERA ((ERA)) here in Australia. In the case of Paladin, the valuation is pared back 4%, although the stock remains the broker’s top pick in the space given the work being done at currently producing operations and better leverage to rising uranium prices. ERA’s valuation slips 5%, with the broker seeing significantly more risk and uncertainty in the stock given the company’s life pretty much depends on the as yet to be decided upon Ranger 3 Deeps project.

In their own report last Friday, industry consultant TradeTech also blamed market uncertainty on the as yet unknown direction of Japan, noting the conflicting signals coming from regulators and politicians on the nation’s new energy policy and about the intentions to restart idled reactors. And as we all know, investment markets don’t like uncertainty, not one little bit.

What we were left with was another slow week. There were just five transactions in the spot uranium market last week that saw less than 600,000 pounds of U308 change hands. This compares to the week prior, when 1.1 million pounds found new owners.

TradeTech notes that prices dropped fairly steadily over the course of last week, with buyers comprised of the normal mix of utilities, traders and financial entities. Sellers also included the usual suspects like producers, traders and financial entities. By the end of last week, TradeTech’s Weekly U3O8 Spot Price Indicator was down US$0.75 to US$45.75 per pound.

If there is any good news to be taken from last week’s activity, it’s that falling prices are starting to draw out more buyers. However, and here’s the big problem for sellers right now, every bit of new demand is being met with a little bit more supply. Hence, increasingly desperate and cash starved suppliers were again willing to cut prices in order to get deals done.

There was no new demand and no transactions reported in the term uranium market last week. This meant TradeTech’s Mid-Term U3O8 Price Indicator stayed put at US$50.25 per pound and the Long-Term U3O8 Price Indicator remained fixed at US$61.00 per pound.
 

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By Andrew Nelson

September started off as about the worst looking month we’ve seen in the uranium spot market in quite a while. It seemed the sluggish spot price was caught in a near perfect storm of indecision about the future of Japan’s nuclear program and merciless bargain hunting, with buyers poised to swoop on any sign of weakness. But as month end neared, there were a few rays of sunshine that peeked through the clouds.

In the early part of the month, the slower the sales, the more buyers emerged out of the woodwork and the more cash-poor sellers came to the table to get deals done. If there is anything positive to take from this, it’s at least there were new buyers entering the market.

As the month played out, spot prices fell at a fairly steady rate, at least over the first three weeks of September. By the end of the month, however, it seemed the retreat had slowed. The question that begs to be answered is: is this the floor? The answer isn’t as finite: wait and see.

There is one ongoing factor affecting the position of sellers that we don’t see given much play, and that is uranium deliveries to China have slowed considerably following the disruption of rail shipments between the Chinese and Kazakh border. This, in turn, has created some real cash flow problems for a number of suppliers, hence the keenness exhibited by some sellers to get deals, any deals, done.

The pace of discounting did slow towards the end of the month, bolstered by news Japan wasn’t actually as yet committed to plans to phase out all of its reactors in 30 years. In the end, the nation’s government was forced to bow to mounting pressure from the country’s largest business to keep the reactors running. With only two reactors having been restarted this year, it seems the decision means the rest will probably be coming on-line and soon.

More good news came when China said it would it would resume construction of new reactor builds towards the end of this year.

While the decline slowed, there was still a bit of a mixed response to these month-end developments. Some sellers continued to drop offer prices, which in turn brought in more buyers, but this time around quite a few of them were looking for significant quantities of material. Industry consultant TradeTech notes this latest run had buyers actually willing to pay higher prices for larger quantities, with quite a wide range of prices seen as the month drew to a close.

Of this new demand, there was one non-US utility looking for around 1.8m pounds of U3O8 in enriched uranium product for delivery before the end of the year.

Overall, TradeTech reports that September saw about 3.7 million pounds U3O8 equivalent change hands in 18 separate transactions. This compares to 17 transactions for 2.9m pounds in August. Over the course of September, TradeTech's U308 Exchange Value dropped US$1.50 from the August 31 exchange Value of US$48.00 to US$46.50 per pound.

There were nine transactions reported in the term uranium market in September, but the dynamic was much the same. By the end of the month, TradeTech’s Mid -Term U3O8 Price Indicator had fallen $US$1.50 to US$50.25. Again, demand did strengthen over the course of September, but the falling spot price continued to apply downward pressure on mid-term prices. 

TradeTech’s Long-Term Price Indicator bucked the trend, rising US$1.00 to US$61.00 on a few recently concluded transactions. 

As said earlier, the end of the month saw a week of mixed signals. The abrupt turnaround in Japan’s policy may have had a soothing effect, but it has fallen well short of being able to reassure the bulk of the market. As such, a few sellers continued to drop offer prices over the course of last week.  The good news is, TradeTech reports further buying interest continued to emerge last week, drawn out by the recent drop in prices.

There were four transactions on the spot market last week, with over 1.1 million pounds U3O8 reported to have changed hands. TradeTech notes that a few of the smaller sales were below spot, but nearly 1 million pounds were also bought at or better than current prices.

The key take away from this, notes TradeTech, is that buyers seem willing to pay a little bit more for larger quantities. As always, market participants included utilities, producers, traders, and financials.

TradeTech’s Weekly U3O8 Spot Price Indicator finished last week unchanged at US$46.50/lb.

There were four transactions reported last week on the term uranium market and also some signs of new demand. 

 
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By Andrew Nelson

Despite a run of soft sentiment that’s only worsened since the March 2011 Fukushima nuclear power plant accident, it still seems fairly clear that policy makers across the globe remain committed to nuclear power for the most part. Despite a few naysayers like Germany and Japan recently “talking about” leaving the nuclear power marketplace, global demand is still expected to increase significantly over the medium to longer term via ongoing demand and new work in Asia, the US and yes, even Europe.

This combination of increasingly tight supply and steady demand growth for nuclear power sees analysts at Morgan Stanley upgrade their view on the uranium market.

The broker expects global nuclear power capacity will increase by 38% over the next eight years as countries chase lower levels of carbon emissions while trying to keep prices down on generation and distribution. This is very much the case in China, although the broker also expects Japan will return to around 60% of its pre-Fukushima level by 2020 despite the recent anti-nuclear rumblings coming from the government.

Based on this sort of demand, Morgan Stanley expects uranium supply will start falling short of its projected demand growth as soon as 2014, lagging demand by some 11.5mlbs in 2015 based on current production levels. The broker expects this gap will continue to widen, increasing to a shortfall of 17.8mlbs by 2020. That is, of course, unless new supply continues to come on line.

There is one major factor required to bring new supply on line and that is higher prices, which will be the only thing that generates new investment and development. On the broker’s numbers, the minimum price it will take to encourage new production through this 8-year period is US$69.50/lb.  

The broker’s  model is predicting deficit market conditions as early as 2014 and while it sees some possible supply relief in 2016-17 as a number of large projects come on-line, we’ll probably be back to supply deficits again from 2018 onwards, thinks Morgan Stanley. This view sees the broker upgrade its uranium spot price forecasts for 2013 and onwards. The broker’s 2013 price is at US$54.63/lb, 2014 has been lifted to US$60.00/lb, 2015 is US$63.00/lb, 2016 sits at US$64.00/lb, while longer term the broker sees the price at US$69.50/lb.

Meanwhile, the spot market continues to move backwards, although last week saw slightly higher volumes than we’ve seen in a few weeks now.  Industry consultant TradeTech reported 850,000 pounds of U308 changed hands last week over the course of six transactions.  Sellers were traders and producers for the most part, with buyers remaining a combination of utilities and traders.

TradeTech notes the spot uranium price struggled all of last week to find some solid footing, but never did. TradeTech’s Weekly U308 Spot Price Indicator ended the week at US $46.50 per pound, down US$0.90 from the previous week’s value. The consultant cited a number of factors for the weakness including the uncertainty about Japan’s nuclear energy policy, with the government there flip-flopping on the issue, which has done little to inspire any optimism among sellers. Over the past few weeks the Japanese government has put out a number of contradictory statements about its plans for an eventual  “zero nuclear” energy policy.

The uncertainty has encouraged a number of sellers to drop prices in order to get deals done, as sitting on stock in hopes of higher prices must certainly be eating into cash flow. TradeTech notes a number of suppliers have been holding onto stock in hopes that China will be able to address a several months' long delay of uranium deliveries following the disruption of rail shipments between the Chinese and Kazakh border.

There was a little bit more life than normal in the term market last week, with TradeTech noting some new demand. A non-US utility has entered the term market looking for 250,000 pounds of U308 delivery over a three-year period. Other than that, it was pretty much the same old demand from weeks gone by. By last Friday, TradeTech’s Mid-Term and Long-Term Price Indicators were still unchanged at US$51.75/lb and US$60.00/lb respectively.
 

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