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Uranium prices glow with decision by main producer Kazakhstan to trim output

20 Feb 2017 10:02 PM | Anonymous, 13.02.2017 

A resurgence in interest for nuclear energy and a sharp reduction in supply is putting a glow on the uranium market, with prices surging 30 percent this-year-to-date. Benchmark  uranium  futures  on  the  New  York  Mercantile  Exchange  are  trading  around  $27  per pound, with prices  getting a boost after top supplier Khazakhstan shocked the market on Jan. 10 when  state-owned  Kazatomprom  announced  a  10  percent  production  cut.  All  of  Kazakhstan's uranium output is produced by the company. Kazakhstan  supplies  40  percent  of  the  world's  uranium  supply,  so  any  output  cuts  will  have  an outsized impact on the market, said Warren Gilman, CEO of CEF Holdings, a Hong Kong-based investment company. Almost all of the world's mined uranium is used for nuclear power generation.

In the company's announcement last month, Kazatomprom chairman Askar Zhumagaliyev said the company will cut  10 percent  of its output this  year, an amount equivalent  to  3 percent  of global production. The decision stems from an oversupply that contributed to a sustained crash in prices that saw prices slump to a 12-year low last December. Kazatomprom's  troubles  came  after  years  of  expanding  supplies  from  2011—the  year  of  Japan's Fukushima Daiichi Nuclear Power Plant disaster, when a powerful earthquake and tsunami caused a meltdown and radiation leaks. The accident prompted plant shutdowns in Japan and re-examination of nuclear safety and policies in many other countries, slashing uranium demand. There's been a recent uptick in interest however, notably from emerging markets like China, India and Southeast Asia. "You have a very good long-term indicator of what demand is going to be; what is the volatility in the recipe is the supply," said CEF's Gilman. "You've got a very focused supply of uranium in a country which has significant sovereign risks surrounding it," added Leigh Curyer, the CEO of NexGen Energy, a uranium exploration company. "(Nuclear power) is undergoing quite a resurgence. A lot of countries are recognizing that nuclear power is the baseload supply of electricity that is emissions-free," he added.

This is particularly in China where air pollution from coal-powered plants have become a social and political issue. There  are  some  61  nuclear  plants  being  built  globally  with  another  150  being  planned,  so  the demand  outlook  for  uranium  is  much  stronger  than  that  for  other  fossil  fuels,  said  Mark  Jolley, equity strategist at CCB International Securities. Macquarie Bank was more circumspect on the current rally, noting that the jump was from a low base as prices tanked to a 12-year low of $18 per pound low in November, with the run-up lagging gains in the energy complex. "Uranium pricing is currently trading 50 percent of where it was 40 years ago in nominal terms – never mind adjusting for inflation. There is no other commodity for which this is true. Essentially, this  has  put  uranium  in  the  situation  where  many  peer  commodities  were  at  this  time  last  year, trading too far into the cost curve for pricing to be sustainable," analysts wrote in a report on Jan. 20.

Even  so,  the  Australian  bank  was  upbeat  on  the  outlook  on  confidence  in  the  U.S.,  the  world's largest uranium consumer. "With the closure of a large number of nuclear power plants announced earlier in 2016 on economic grounds, legislative actions in New York and Illinois keeping some of these open will provide both more optimism and spot market demand into 2017," Macquarie analysts wrote.