Tag Archives: Uranium

article 3 months old

Uranium Mismatch Continues To Frustrate

By Greg Peel

It started late last year and it has continued into January. The bulk of “real” global spot uranium demand (utilities as opposed to traders) is currently centred in Europe where U3O8 is being sought. The bulk of “real” uranium supply (not just traders) is centred in the US and it's in the form of UF6. Those needing apples in one part of the world are not interested in oranges far, far away.

Clearly this makes it more difficult for industry consultant TradeTech when trying to publish an “indicative” spot uranium price in a non-homogenous market. The bottom line is that last month simply saw some jostling between traders and producers with neither wishing to give much ground in a market where price direction is back to front. The Europeans will pay more for U3O8 than the Americans are selling UF6 for.

The month of January was quiet, TradeTech reports, seeing only fifteen spot transactions totalling 1.8mlbs of U3O8 equivalent. TradeTech's end-month price was set at US$52.25/lb but after the week ending January 3, in which five transactions totalling only 675,000lbs were completed, that price has fallen by US25c to US$52.00/lb.

There is nevertheless action in the medium and long term markets. TradeTech reports five transactions totalling 900,000lbs for delivery in 2013-14 contracted in January. The bad news is TradeTech has subsequently lowered its medium term price indicator by US50c to US$54.50/lb. There was fresh demand apparent in the longer term delivery market as well but no transactions, leaving TradeTech's long term indicator at US$61.00/lb.
 

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article 3 months old

The Short Report

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By Chris Shaw

Short positions on the Australian market recorded some significant moves in the week from January 24, the most significant being in Rialto Energy ((RIA)). Shorts in Rialto jumped from less than 0.2% to 6.7% for the week, the increase likely reflecting an equity raising announced by the company for working capital and development expenses.

Another sizable jump was seen in Paladin Energy ((PDN)), where shorts rose by 1.24% to 3.39% following a quarterly production report that was largely in line with market expectations. Asciano ((AIO)) also saw shorts rise for the week by more than 1.0% to a more significant 1.73%. this came as BA Merrill Lynch in particular saw few short-term catalysts for the stock given fewer potential coal contracts in the pipeline and a likely longer time-frame for cost outs to have some impact.

While still among the retail dominated top 10 short positions on the Australian market, Billabong ((BBG)) actually enjoyed a solid decline in shorts for the week from January 24. Total shorts in the stock declined 1.77% and now stand at just more than 9.0%.

Shorts also declined significantly for Australian Infrastructure ((AIX)), total positions down from nearly 2.0% previously to just 0.36% now despite little company specific news to explain such a change. Shorts in Kingsgate ((KCN)) fell 1.43% to 1.19% in total, a move seemingly justified by evidence from the company's quarterly report both the Chatree and Challenger projects have turned the corner in terms of performance.

While quarterly production from Whitehaven ((WHC)) disappointed somewhat, there has been a 1.36% decline in shorts to 1.61%, while Macquarie Atlas Roads ((MQA)) saw a similar fall to a total short position of 1.37%. Brokers remain of the view the outlook for MQA is closely tied to the upcoming Eiffarie refinancing.

The recent quarterly production report of Independence Group ((IGO)) contained no major surprises but short positions in the stock essentially halved to 1.24% in the week from January 24, while shorts in Charter Hall Office ((CQO)) have fallen to almost zero from 1.24% previously.

In terms of monthly changes in shorts, aside from Rialto the biggest increases were in Cochlear ((COH)), Fortescue ((FMG)) and OneSteel ((OST)). The latter two companies are both exposed to the iron ore market, where the shorter-term outlook appears more uncertain given ongoing concerns with respect to the Chinese and global economies.

There were few significant decreases in short positions over the month from December 22, while the top-20 short positions continue to be dominated by companies directly exposed to the retail sector such as JB Hi-FI ((JBH)), Myer ((MYR)) and David Jones ((DJS)) and those linked to discretionary spending in general such as Flight Centre ((FLT)), Carsales.com ((CRZ)) and Wotif.com Holdings ((WTF)).

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 22234609 98833643 22.51
2 ISO 914555 5403165 16.93
3 MYR 72246792 583384551 12.34
4 FXJ 272400260 2351955725 11.60
5 DJS 55131985 524940325 10.50
6 FLT 9426155 100005264 9.41
7 BBG 23147131 255102103 9.07
8 COH 4666140 56902433 8.14
9 LYC 122827184 1713846913 7.15
10 RIA 25130875 375006264 6.70
11 WTF 14105918 211736244 6.66
12 RIO 26013257 435758720 5.97
13 CRZ 13878975 233264223 5.96
14 PPT 2491736 41980678 5.94
15 HVN 59978683 1062316784 5.63
16 TRS 1390659 26071170 5.33
17 GNS 45116730 848401559 5.30
18 BOQ 11727918 229598329 5.08
19 OST 64823991 1342393583 4.82
20 WSA 8165912 179735899 4.54

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Brokers have displayed some caution leading into the profit reporting season this month, the FNArena database showing the eight brokers providing coverage on Australian stocks have upgraded only eight ratings over the past week compared to 13 downgrades. This brings total Buy recommendations to 55.45%.

A solid quarterly update from Aston Resources ((AZT)) was enough for UBS to upgrade to a Buy rating, the broker noting progress at the Maules Creek project continues to be solid. Valuation has also improved in UBS's view given recent share price weakness.

For Automotive Holdings ((AHE) it was an acquisition that expands the group's presence in the Victorian market that was enough to spark an upgrade to a Buy rating from RBS Australia. An attractive valuation adds weight to the broker's rating.

Fletcher Building ((FBU)) was also upgraded to a Buy by RBS, this reflecting the view the outlook for a gradual improvement in conditions in the construction market should favour the value plays into the second half of this year. 

Opinions on GWA ((GWA)) remain divided, as while Deutsche Bank suggests the current tough market conditions are priced in and so the stock offers value at current levels sufficient to justify an upgrade to a Buy, Credit Suisse disagrees. The latter has downgraded to Neutral from Outperform, this reflecting the view the current downturn will probably be deeper and last longer than has been expected up until now.

Deutsche also upgraded Mesoblast ((MSB)) to Buy from Hold as the company has received approval to advance to Phase II trials of its diabetes treatment. Further good news is expected in coming weeks from approval for Phase II trials of a congestive heart failure treatment.

Solid mask sales and stronger margins in the second quarter were enough for Deutsche to upgrade ResMed ((RMD)) to Buy from Hold, while both Roc Oil ((ROC)) and Tabcorp ((TAH)) scored upgrades primarily on valuation grounds. The former saw JP Morgan move to Overweight from Underweight, while the latter had Macquarie upgrade to a Neutral recommendation.

Among the downgrades the most common was Energy Resources of Australia ((ERA)), which is fast becoming an exploration company with potential projects threatened by bad weather. Concern over the future at Ranger Deeps and the lack of any potential catalysts for outperformance were behind downgrades to Sell ratings by both UBS and Credit Suisse.

A weak quarterly production report from Aquarius ((AQP)) and the expectation of at least one more quarter of the same level was enough for Citi to downgrade to a Neutral rating. The change reflects the lack of potential share price upside medium-term and valuation issues at current levels.

The lack of shorter-term catalysts were also enough for BA-Merrill Lynch to downgrade Asciano ((AIO)) to Neutral from Buy, especially given rival QR National ((QRN)) appears to have more shorter-term growth options.

Earnings headwinds across the IT sector have seen RBS cut its earnings estimates for ASG Group ((ASZ)), the prevailing headwinds enough to see the broker move to a Hold rating. It is a similar story over at Bank of Queensland ((BOQ)), where Deutsche has downgraded to a Hold rating to reflect the current lack of asset growth being achieved.

Reduced expectations for the Melbourne and Sydney office markets are behind Macquarie downgrading to an Underperform rating on Commonwealth Property Office ((CPA)), the broker also downgrading to a Neutral rating on Dexus for similar reasons.

A weak result and a resultant lowering in forecasts and confidence in coming years is enough for RBS to downgrade to sell from Buy on CSG ((CSV)). Upcoming commissioning risks at the Boseto project are enough for Deutsche to move to a Neutral rating on Discovery Metals ((DML)), while valuation issues and tough market conditions have prompted downgrades for James Hardie ((JHX)) and Regis Resources ((RRL)).

Outside of ERA the most significant change in price targets was in Alesco ((ALS)), as tough market conditions continue to outweigh any operational improvements the group is achieving. Mirabela ((MBN)) saw both its target and earnings estimates reduced after a disappointing quarterly report, while post somewhat disappointing quarterly reports from Gloucester Coal ((GCL)), Alacer Gold ((AQG)), Panoramic Resources ((PAN)) and Atlas Iron ((AGO)) brokers responded by lowering earnings estimates. 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=119,110,123,108,92,150,187,158&h0=79,104,84,116,87,90,113,86&s0=41,18,18,8,30,23,9,16" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 ASTON RESOURCES LIMITED Neutral Buy UBS
2 AUTOMOTIVE HOLDINGS GROUP LIMITED Neutral Buy RBS Australia
3 FLETCHER BUILDING LIMITED Neutral Buy RBS Australia
4 GWA GROUP LIMITED Neutral Buy Deutsche Bank
5 MESOBLAST LIMITED Neutral Buy Deutsche Bank
6 RESMED INC Neutral Buy Deutsche Bank
7 ROC OIL COMPANY LIMITED Sell Buy JP Morgan
8 TABCORP HOLDINGS LIMITED Neutral Neutral Macquarie
Downgrade
9 AQUARIUS PLATINUM LIMITED Neutral Neutral Citi
10 ASCIANO GROUP Buy Neutral BA-Merrill Lynch
11 ASG GROUP LIMITED Buy Neutral RBS Australia
12 BANK OF QUEENSLAND LIMITED Buy Neutral Deutsche Bank
13 COMMONWEALTH PROPERTY OFFICE FUND Neutral Sell Macquarie
14 CSG LIMITED Buy Sell RBS Australia
15 DEXUS PROPERTY GROUP Buy Neutral Macquarie
16 DISCOVERY METALS LIMITED Neutral Neutral Deutsche Bank
17 ENERGY RESOURCES OF AUSTRALIA Buy Sell UBS
18 ENERGY RESOURCES OF AUSTRALIA Sell Sell Credit Suisse
19 GWA GROUP LIMITED Buy Neutral Credit Suisse
20 JAMES HARDIE INDUSTRIES N.V. Buy Neutral RBS Australia
21 REGIS RESOURCES LIMITED Buy Neutral Deutsche Bank
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 ROC 25.0% 75.0% 50.0% 4
2 AHE 50.0% 75.0% 25.0% 4
3 KCN 40.0% 60.0% 20.0% 5
4 AZT 60.0% 80.0% 20.0% 5
5 GNC 33.0% 50.0% 17.0% 6
6 MRM 67.0% 83.0% 16.0% 6
7 ORG 75.0% 88.0% 13.0% 8
8 FBU 63.0% 75.0% 12.0% 8
9 RMD 38.0% 50.0% 12.0% 8
10 CPB 14.0% 17.0% 3.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 ERA - 38.0% - 63.0% - 25.0% 8
2 RRL 75.0% 50.0% - 25.0% 4
3 ALS 60.0% 40.0% - 20.0% 5
4 CRZ 83.0% 67.0% - 16.0% 6
5 WHC 83.0% 67.0% - 16.0% 6
6 DXS 29.0% 14.0% - 15.0% 7
7 CPA - 29.0% - 43.0% - 14.0% 7
8 REA 71.0% 57.0% - 14.0% 7
9 QAN 88.0% 75.0% - 13.0% 8
10 MGX 25.0% 13.0% - 12.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 AIO 3.371 3.790 12.43% 8
2 RRL 3.618 3.975 9.87% 4
3 ROC 0.498 0.538 8.03% 4
4 KCN 8.664 8.966 3.49% 5
5 MGX 1.609 1.623 0.87% 8
6 CPA 1.007 1.013 0.60% 7
7 RMD 3.163 3.180 0.54% 8
8 AHE 2.408 2.415 0.29% 4
9 MRM 3.493 3.502 0.26% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 ERA 2.403 1.444 - 39.91% 8
2 ALS 2.366 1.560 - 34.07% 5
3 FBU 7.350 6.350 - 13.61% 8
4 QAN 2.088 2.030 - 2.78% 8
5 BOQ 9.576 9.345 - 2.41% 8
6 WHC 6.980 6.840 - 2.01% 6
7 ORG 17.574 17.380 - 1.10% 8
8 AZT 11.888 11.763 - 1.05% 5
9 WBC 23.026 22.965 - 0.26% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 ROC 3.109 6.011 93.34% 4
2 TAP 1.625 2.125 30.77% 4
3 BPT 4.820 5.560 15.35% 5
4 SXL 14.263 16.188 13.50% 8
5 AIO 16.438 18.625 13.30% 8
6 AWE 7.286 8.200 12.54% 7
7 BRG 29.333 32.000 9.09% 3
8 IGO 5.720 6.020 5.24% 5
9 RMD 15.139 15.740 3.97% 8
10 PPT 133.257 135.443 1.64% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 MBN 0.477 - 0.199 - 141.72% 5
2 GCL 21.240 5.480 - 74.20% 5
3 AQP 16.709 7.135 - 57.30% 5
4 AQG 113.627 73.746 - 35.10% 6
5 PAN 9.925 6.800 - 31.49% 4
6 AGO 28.475 20.726 - 27.21% 8
7 MML 64.677 48.496 - 25.02% 3
8 CHC 23.467 17.800 - 24.15% 6
9 MGX 37.413 28.425 - 24.02% 8
10 ALS 22.435 17.833 - 20.51% 5
 

Technical limitations

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article 3 months old

All Quiet In Spot Uranium

By Greg Peel

There's a reasonable amount of demand around for uranium at present, according to industry consultant TradeTech, but not in the spot market. Requests for delivery later this year or into 2013 are short dates as far as the wider uranium market goes but their existence is having little impact on spot pricing.

Only two spot transactions were concluded last week totalling 250,000lbs as neither the buy-side nor the sell-side feels compelled to give up much ground. TradeTech's spot price indicator fell by another US25c to US$52.25/lb.

TradeTech's medium and long term price indicators remained at US$55/lb and US$61/lb respectively despite some building demand for the longer dates. One utility is seeking 800,000lbs U3O8 for delivery by the end of the quarter and a producer is looking for a further 400,000lbs.

There is a utility seeking 1.2mlbs for delivery over four years and another is looking for 1.7mlbs for delivery over 2014-2020 and these are only two of a handful of longer dated contract deals on TradeTech's radar. 

While the Fed's further monetary stimulus announced last week provided a boost to base metal prices on a dollar devaluation basis, it appears to have had no impact on the uranium market.
 

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article 3 months old

Uranium Over-Excited?

By Greg Peel

RBC Dominion Securities notes that global uranium mining stocks rallied 13% on average last week, spurring investors into believing that a uranium bull market will shortly be upon us once more. RBC also believes there will be a rally in the future, but doesn't believe its time has yet come. If spot price gains don't now back up share price gains, warns RBC, those share price gains may quickly disappear.

Unfortunately last week did indeed see a fall in the uranium spot price according to industry consultant TradeTech's price indicator, although only of US25c to US$52.50/lb and largely due to a lack of interest. Only three transactions were recorded last week totalling 200,000lbs of U3O8 equivalent. Traders are finding it difficult to be enthusiastic uranium market participants at present, suggests TradeTech, due to variations in delivery times and delivery locations across the globe as well as form (U3O8, UF6 etc). 

There is nevertheless interest still bubbling in the market outside of the spot action. TradeTech reports three transactions in the term market last week totalling 600,000lbs with several other delivery contracts being sought. TradeTech's term price indicators remain at US$55/lb (medium) and US$61/lb (long).

RBC notes various global uranium miners provided encouraging production reports for last quarter, including locals Energy Resources of Australia ((ERA)) and Paladin Energy ((PDN)). On the demand side, RBC also sees positive developments ahead.

China is now planning to resume approvals of new nuclear power plants (on hold since Fukushima) and to be back on the track of increased uranium demand. The HEU (highly enriched uranium) agreement between the US and Russia, involving the dismantling of nuclear warheads and sale of the material for energy purposes, will come to an end in November 2013 and remove 24 million pounds of U3O8 supply per annum. And the low uranium price environment existing post Fukushima has served to delay new production outside of Kazakhstan.

RBC estimates the global uranium market will swing into “substantial” deficit from 2014. 
 

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article 3 months old

Term Buyers Enter Uranium Market

By Greg Peel

Industry consultant TradeTech closed out its spot uranium price indicator for 2011 at US$52.00/lb. This was down from US$62 at the end of 2010. Spot trading activity in 2010 totalled 42.8mlbs and marked the highest level in 20 years. Activity in 2011 – the year dominated by the “fallout” from Fukushima – reached a new record of 45.8mlbs.

Prior to the Japanese tsunami spot uranium had reached a high of US$73 as interest began to turn belatedly back to the controversial energy source. Hedge funds had been so burnt in the 2006-07 bubble and bust that many were never to return to spot uranium trading, but continuing price rises for most commodities, and particularly for rivals coal and oil, saw a tentative reemergence late in 2010. Then along came the tsunami in March last year and the whole face of the global uranium industry changed.

The spot price quickly traded under US$50 as a result but soon stabilised above that level, suggesting actual end-users were and are still happy to pick up inventory at or below this line in the sand. Spot trading into 2012 remains at the best “discretionary”, in TradeTech's observation, as buyers and sellers eye each other off without solid commitment. Last year also saw locational discrepancies, and trading in 2012 has seen prices for delivery in Europe remain at a premium to those in the US.

Last week saw only three spot transactions totalling less than 400,000lbs, TradeTech reports. However, the emergence of a non-US utility seeking 800,000lbs of U3O8 for delivery by end-March encouraged buyers enough to see the indicative price rise by US75c to US$52.75/lb by week's end. Indeed it appears that things are hotting up somewhat in the term market.

Before Christmas TradeTech's indicative term prices sat at US$54.50 (mid) and US$62.00 (long) but the consultant has since closed the gap, showing US$55.00 (mid) and US$61.00 (long). Last week was dominated by non-US utilities in the market seeking term deliveries, with 1.2mlbs sought over four years, 1.7mlbs sought for 2014-20 delivery and 2.9mlbs for 2012-32 delivery, among other less specific but significant contracts.

TradeTech has left its term prices in place for now.


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article 3 months old

The Short Report

By Chris Shaw

Increases in short positions outweighed decreases in the week from December 7th, with three companies seeing shorts increase by more than 1.0% against just one fall by a similar amount.

The largest increase was in BlueScope Steel ((BSL)), shorts increasing by 2.1% to nearly 4.4% as the market continues to adjust to both tough trading conditions and the recently announced capital raising by the company.

Shorts also jumped higher for Whitehaven Coal ((WHC)) from a negligible level to 1.63%, this following the proposal for a merger of equals between Whitehaven and Aston Resources ((AZT)). Brokers in general are positive on the proposal, though the price being paid for the Boardwalk Resources assets has been identified as a possible point of concern.

Media market conditions remain tough and as a reflection of this shorts in Fairfax ((FXJ)) remain at an elevated level, rising a further 1.4% to nearly 13%. The other dominant sector in terms of high short positions is retail, where the likes of Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)) and JB Hi-Fi ((JBH)) continue to have short positions among the highest in the market.

Investors have been proven correct with respect to both Billabong and JB Hi-Fi given both have delivered profit warnings to the market in recent sessions.

The most significant fall in short positions for the week from December 7th was in Singtel ((SGT)), where a decline of 1.1% has total shorts now at 2.45%. There has been little from the company since a quarterly update early in November.

Monthly changes in short positions suggest concerns over companies exposed to the discretionary retail sector remain, as Flight Centre ((FLT)) and Myer both saw shorts rise by more than 1.3% for the period.

Shorts in Iluka ((ILU)) also rose over the past month by 1.6% to nearly 3.2%, this despite the company announcing strong price increases for titanium oxide that has seen brokers lift earnings estimates for the coming year.

Resource companies in general have been among the more prominent in terms of short position increases over the past month, this as the European debt crisis continues to weigh on the global growth outlook and on the prospects for commodity demand.

Alkane Exploration ((ALK)), Ramelius Resources ((RMS)), Arafura Resources ((ARU)) and Kingsgate Consolidated ((KCN)) all experienced increases in shorts of more than 1.0% over the past month. Wesfarmers ((WES)), which also has a discretionary retail exposure through the Coles group, was the closest of the industrials as its shorts rose by 0.9% during the period.

Falls in shorts for the month from November 14th were also dominated by resource stocks, with Santos ((STO)), Murchison Metals ((MMX)) and Paladin ((PDN)) all enjoying falls of more than 1.0%. Aristocrat Leisure ((ALL)) was the only industrial stock to enjoy a more than 1.0% fall in shorts for the month from November 14th.

Elsewhere, RBS notes Macquarie Group ((MQG)) has seen an increase in shorts of just over 0.5% in the past month. In the view of RBS this reflects ongoing tough conditions in capital markets given the Eurozone crisis continues to drag, something expected to weigh on earnings for Macquarie.

One stock where short position moves indicate the market is uncertain is Cochlear ((COH)), as RBS notes while shorts have risen by almost 1.0% over the past month they have fallen slightly in the last week. The changes have mirrored the news flow from the company, as ongoing concerns about issues with the Nucleus 5 implant may be tempered in coming sessions given the company has indicated it has found out why the device was failing.
 

Top Ten Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 21613182 98833643 21.87
2 ISO 935644 5401916 17.32
3 FXJ 306805187 2351955725 13.05
4 MYR 71813085 583384551 12.30
5 BBG 29113634 255102103 11.43
6 DJS 51019454 524940325 9.70
7 FLT 9514262 99997851 9.49
8 LYC 117271559 1713846913 6.83
9 WTF 13734586 211736244 6.48
10 PPT 2714307 41980678 6.45

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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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article 3 months old

Bargain Hunters Rule In Spot Uranium Market

By Rudi Filapek-Vandyck

The spot uranium market (U3O8) has effectively gone into holiday mode with industry consultant TradeTech recording only four concluded deals for the week ending on Friday, still good for circa 400,000 pounds to change ownership during the week. All buying activity remains discretionary, reports TradeTech, hence market activity is all about buyers trying to seal a bargain.

No surprise thus, the consultant's weekly spot price benchmark has yet again taken a (small) step backwards finishing the week down US25c at US$52.25/lb.

TradeTech's mid-term price benchmark has remained unchanged at US$54.50/lb while the longer term benchmark still sits at US$62/lb.

 

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article 3 months old

Spot U3O8 Jumps US75c

By Rudi Filapek-Vandyck

Buyers found themselves chasing higher prices in the spot uranium (U3O8) market last week, with industry consultant TradeTech pointing in the direction of one non-US utility selecting a provider for 275,000 pounds of yellow cake. Demand for deliveries in Europe also picked up considerably during the week.

The end result was TradeTech's spot price jumping US75c per pound on the back of seven successfully concluded deals, good for a total of 875,000 pounds changing ownership. TradeTech's new spot price now sits at US$52.50/lb. This compares with a medium-term price benchmark of US$54.50 (unchanged) and a Long-Term price indicator of US$62/lb (also unchanged during the week).

There is no new apparent demand in the term uranium market, but TradeTech's list of existing interest suggests there's still plenty of room for price negotiation. According to the industry consultant, one non-US utility is seeking a total of over 1.7 million pounds U3O8 for delivery between 2014 and 2020. This utility is currently evaluating offers.

Another non-US utility continues to evaluate offers for deliveries beginning in 2019 and continuing through 2023, and another non-US utility is evaluating offers received in response to its Request for Proposals seeking up to 50% of its uranium, conversion, and enrichment requirements with deliveries beginning in
2015, according to TradeTech.

A third non-US utility continues to evaluate offers for up to 2.9 million pounds U3O8 equivalent contained in UF6 or enriched uranium product (EUP) for delivery that would begin in 2012 and continue for the life of the plant, or until 2032. Another non-US utility is evaluating offers for long-term deliveries that would begin in 2015.

 

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Kazakhstan – The Uranium Price Setter

By Greg Peel

It's been an eventful year in the global uranium market.

The year began with the globally significant Ranger mine in the Northern Territory shutting down due to flooding, and there is still no guarantee operator Energy Resources of Australia ((ERA)) will decide the veteran mine can be commercial from here on. ERA needs to sort out the costly business of ensuring water management for the future of the open cut mine and whether or not it will proceed with the planned underground Ranger Deeps project. Resistance from the local indigenous population remains an issue, as is the case with ERA's seemingly pie in the sky hopes for its Jabiluka prospect in the Kakadu National Park.

ERA is 67% owned by global diversified mining giant Rio Tinto ((RIO)), and Rio's Rossing mine in Namibia is also in decline. Paladin Energy's ((PDN)) neighbouring Langer Heinrich and Kayakeleera mines are world-class, but Paladin has been beset by problems and delays in its Langer expansion and Kaya ramp-up.

Rio's rival BHP Billiton ((BHP)) has grand plans to expand uranium mining at its Olympic Dam project. The development has met with state government approval but realistically such plans are very long term.

March brought the Japanese tsunami and the Fukushima reactor disaster, the ramifications of which continue to reverberate. Aside from taking the wind out of uranium pricing, the disaster has led to a substantial political response. Switzerland and Germany now have plans in place to phase out of nuclear energy, and a change in government in France next year would likely bring the same result. France is the highest proportionate consumer of nuclear powered electricity in the world.

Japan has obviously needed to rethink its nuclear energy policy, and while still undecided its has moved to at least close down old or vulnerable reactors for now, potentially unleashing significant uranium stockpiles into world supply. The US has not announced any significant change to its nuclear policy, but the government has discovered that the environmental clean-up of legacy projects can be funded by re-enriching state-owned stockpiles of uranium tailings. This has added another supply source to the global market.

The Australian federal Labor party has voted to allow the export of uranium to India for peaceful purposes, lifting the previous ban based on India's failure to sign the global nuclear non-proliferation treaty. Pakistan believes it should be afforded the same deal, but one might politely suggests “good luck”. The policy is yet to be ratified in parliament.

The Indian announcement had uranium stock investors in Australia all excited given the upside in potential demand from India, yet given India already happily imports uranium from Canada and others, the lifting of Australia's ban does not alter the global demand-supply equation.

In the meantime Rio Tinto is in a battle with Canada's globally significant producer Cameco over potential acquisitions in that country, suggesting Rio is not giving up on its uranium business. Cameco could teach Rio a thing or two about flooded mines, given the company's huge Cigar Lake prospect has been delayed by flooding for years now and is yet to come on line. Paladin owns substantial uranium prospects in Queensland where a state ban on uranium mining is yet to be lifted thanks to the power of the local coal mining unions. As to whether federal policy will be able to influence state policy in Queensland is up for debate. It never has before.

China offers the greatest demand upside into the future through the number of reactors it intends to build, and that policy has not been dampened by Fukushima other than to provoke more robust safety considerations. Indeed, China and India between them have a total of 228 reactors in the official planning or proposal stages, notes Uranium Investing News.

Which brings us to Kazakhstan. This former Soviet state may have suffered a good deal of parody in recent years, but as the second largest FSU state by area after Russia the country boasts expansive oil, gas and coal deposits as well as significant gold, copper, lead, zinc and chromium resources. Kazakhstan is also home to 15% of the world's known uranium and state-owned Kazatomprom has tripled uranium production in the past three years. In 2009, notes Uranium Investing News, Kazakhstan became the world's leading producer at 28% of global production, increasing that level to 33% in 2010. Kazatomprom expects production to increase by 25,000-30,000 tonnes annually over the next decade.

In terms of its GDP growth curve, Kazakhstan rivals China. Standard & Poor's has given Kazakhstan a higher credit rating than Russia given a higher export-to-consumption ratio than its neighbour. And speaking of neighbours, China and India are only a stone's throw away.

That's nice.

So significant is Kazakhstan's potential uranium supply that in the wake of Fukushima the country has decided it does not want to bite the hand that feeds it. Therefore like OPEC and crude oil, and Qatar and LNG, Kazakhstan has now decided to limit production – to 20,000 tonnes next year.

The spot uranium price has struggled to gain any traction since it found support at around US$50/lb after the initial Fukushima-led drop. With the future of global uranium demand remaining somewhat uncertain, real end-users and end-consumers have backed away from significant commitments leaving mostly traders and hedge funds to fiddle around the periphery, as industry consultant's TradeTech's weekly reports would suggest.

Looking ahead however, the global uranium market will likely be one controlled effectively by one large former Soviet state.
 

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