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Uranium was the glaring exception amid a broad-based rally in metals and minerals in 2016. The price of U3O8 fell 41% in 2016 with the industry tracker UxC’s broker average price hitting 12-year lows below $18 per pound in November.
Then, against expectations, the price started to turn. When top supplier Kazakhstan announced in the second week of January that it’s cutting output by 5.2 million pounds, equal to 3% of global production, the rally seemed justified.
Enough uranium is above ground for the next eight years
By February 10 the price had climbed 50% from its November low at $26.75 a pound despite more indicators of weakness to come including Japanese utility TEPCO’s declaration of Force Majeure on a key uranium delivery contract from Cameco Corp. (CCO-T), top listed uranium producer.
Uranium has been drifting lower since then, trading at $22.75 last week. Now a development in the US could breather new life into the uranium rally.
Rob Chang Managing Director and Head of Metals & Mining – Canada at Cantor Fitzgerald in a research note on Monday highlights large cuts made by the US Department of Energy in the amount of uranium that it disperses into the market.
Chang believes the development is very positive for the sector. The 2 million pounds allowed by the Dept for the remainder of 2017 and the 3.1 million pounds for 2018, are notably less than the 4.2 million pounds equivalent that was occurring in prior years.
This is effectively an annual cut of 1.1 million pounds or nearly half the Kazakh output reductions and should take some pressure off the spot market says Chang:
The announcement by Kazatomprom sparked a spot uranium price rally from US$20.25/lb to a peak of US$26.00/lb, or by 28%. Uranium equities across the board experienced large gains during the same period.
Combined, the Kazakh and U.S. DOE cuts amount to 6.3M lbs of U3O8 equivalent, which is 4% of our forecast production at the beginning of 2017.
Cantor Fitzgerald’s supply and demand forecast projects likely shutdowns and production curtailments if realized prices are flat-lined at $40 per pound as shown in the graph.
Nevertheless, today’s prices are still a long way away from the all-time high of nearly $140 a pound reached in June 2007. Uranium’s weakness persists despite strong fundamentals with only reactors already being built – 66 in total, mostly in China – expected to increase the global need for uranium by a fifth from today’s levels.
Following the Fukushima reactor meltdown in 2011, market expectations were that Japan would move quickly with restarting their reactors, but 38 remain shut five years on.
Uranium that would have been delivered to Japan is being stockpiled. UxC estimates global inventories as high as 1.4 billion pounds of which some 800m pounds are sitting utilities and most of the remainder with the Russian and US governments.
While not all stockpiles can easily be brought onto the market, roughly 173 million pounds are needed per year to feed the world’s more than 400 operable reactors which means enough uranium is above ground for the next eight years.
2 Comments
George Lee
With Oil and gas pipelines being opposed by the so called green environmentalist and nuclear electricity generation as well , no to forget that pipelines are the most efficient and safest ways to transport oil and gas ( that means the greenest method available to humankind ) .
Also no to forget that nuclear beides its high initial cost and accidents occurred in the past and without minimizing the impact caused in population and environment it is still the greenest solution to the environment and climate change.
As a true environmentalist the objective is not to prohibit or impede the development of the various forms of technology that are not green but how to minimize it’s adverse effect in the planet and how to maintain a clean environment and surroundings in this our lovely planet.
Instead of concentrating in stopping the operation of of the different electrical generation schemes that do not qualify in their plans as being green you ought to concentrate in how to make the cleaner and greener if the cost to keep a safe and clean operation becomes prohibitively high , industry will naturally fall in the facing out of such technology therefore, the extinction of such method or technology to generate electricity.
Don’t demonize the different ways to generate electricity, but the efforts not put forth to keep this ways clean.
Sven
If only the Gov was concerned about the silver manipulation (which who could have known?).