UxC’s Nick Carter predicts ‘gradual upward movement’ of uranium price

Nicolas Carter is Executive Vice President, Uranium, at UxC LLC, one of the nuclear industry’s market research and analysis companies. Carter has 21 years of nuclear industry experience. He is responsible for managing and coordinating uranium consulting projects and products, including The Ux Weekly, Uranium Market Outlook, Uranium Suppliers Annual, and Uranium Production Cost Study. During his career he has provided strategic consulting to major commercial companies in the nuclear fuel industry and advised government and international organizations on uranium market and policy issues. He specializes in economic analysis and forecasting, specifically in the areas of worldwide U3O8 production capability, production costs and price projections. He recently took time out to speak to The Northern Miner about his outlook for uranium.

The Northern MinerUranium doesn’t really trade like many other commodities, and buyers and sellers typically negotiate contracts privately. Utilities usually buy their fuel in four- to 10-year contracts to lock in the price. Is it true that there have been no significant long-term contracts signed in the last two years?

Nick Carter: Uranium does trade in an active spot market, although it doesn’t have the liquidity of many other key commodities, such as coal or oil. In 2018, spot volume consisted of 88.5 million pounds ‎U3O8 from 440 transactions, with about 25% of the volume coming from utility purchases. The term market accounted for volume of about 90 million pounds ‎U3O8 from 30 transactions in 2018. Among U.S. utilities, average contract lengths for term contracts were much shorter at three years compared to an average of seven years for non-U.S. utilities. Additionally, one non-U.S. utility purchase accounted for 28 million pounds ‎U3O8 over 10 years. Term contracting volumes have picked up slightly over the past couple of years, but the majority of these contracts have continued to be signed at fixed prices or market-related prices (along the forward price curve).

TNMWhere do you see uranium long-term and short-term prices going by the end of this year? What is your outlook for the next five years?

NC: The current spot uranium price, as of Jan. 22, is US$28.80 per pound ‎U3O8, and the long-term price resides at US$32.00 per pound ‎U3O8 as of the end of Dec. 31, 2018. We expect to see a continued upward trend in the spot price over the remainder of the year as lower-cost inventories are purchased by producers and utilities in the next 11 months. For 2019, we project the spot price could push into the low to mid US$30’s range, with gradual upward movement to the high US$30’s to low US$40s five years from now.

How quickly the spot price increases will depend largely on when Cameco’s McArthur River mine resumes production and whether Kazakhstan boosts production from excess capacity at existing ISR mines. The degree of movement in long-term price typically lags the spot market, but we could see a considerable jump later in the year on the heels of the Section 232 investigation. As the spot price moves higher, utilities are likely to more closely consider base-escalated term contracts, especially if they have some surety regarding the longevity of their reactors. UxC expects the long-term price could reach upward of $36 per pound ‎U3O8 this year, with a price in the mid-$40s five years from now.

TNMWhat is the marginal cost of production? Is it still around US$40 per lb.? Is there any hope that production costs will go down?

NC: One of the major issues is that there is still a fair amount of higher-cost inelastic production that meets the demand of many domestic nuclear programs – China, India, and Russia, for example. Meanwhile, higher-cost production in Niger continues to supply a portion of France’s nuclear power program. Currently, the marginal production cost is in the low- to mid-US$30s, but a significant amount of low-cost (sub-US$30) production has been removed from the market in the last couple of years in the effort to reduce global inventories and better align production with demand.

TNMIs it true that some of the big uranium producers are buying product on the spot market because it’s cheaper than producing it themselves? And for the same reasons you are seeing utilities preferring to buy what they need on the spot market because the price is so low? If you’re a utility, the question is: I can buy it on spot at $28.80 per lb. or I can sign a long-term contract … No one wants to be the first to sign a new long-term contract, correct?

NC: Yes, Cameco has publicly stated that it is purchasing spot uranium to place into committed sales contracts. In November 2018, the company said it expected to purchase between 10-12 million pounds ‎U3O8 in 2019 to meet delivery commitments and maintain desired inventory levels. In the U.S., Ur-Energy and Peninsula Energy have purchased spot uranium to feed into delivery commitments. Utilities, particularly in the U.S., have a preference for spot uranium or mid-term uranium contracts (2-4 years) at fixed prices. The Section 232 investigation is also impacting U.S. utilities, as many of them are holding off the market until a determination is made by the Department of Commerce in the case. Furthermore, some utilities are unsure how long some of their reactors will be operating without the benefit of clean energy legislation, and this uncertainty prevents them from committing to longer term-contracts.

TNMThere seems to be a consensus forming in the uranium space (again) that the market for uranium is on the brink of getting better. Would you agree and why?

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