Market sources say US companies appear to be on course to produce about 1.6 million pounds of uranium this year, the lowest amount since 1951. Jim Ostroff explains that it isn't just production that has fallen off; prices have also plummeted. Uranium is facing stiff competition from natural gas and renewable mandates, so utilities are buying it differently in the market—but will that last?
Video Transcript
US uranium producers plagued by low prices, scant utility purchasing
By Jim Ostroff, senior editor, Platts nuclear publications
Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.
US uranium production totaled 2.9 million pounds last year after plummeting 40% from 2014, when it was about 5 million pounds.
With uranium production continuing to ramp down in Wyoming and Nebraska, market sources say US companies this year appear to be on course to produce about 1.6 million pounds, the lowest amount since 1951. Producers have shut-in virtually all facilities, halted all new investment and are producing only enough uranium to meet contractual obligations signed years ago.
US production has tanked because uranium spot prices have, as well. They’re just over $20 a pound today, down 71% since reaching $70 in early 2011.
Uranium producers have significantly reduced output in light of low prices
At that price, no uranium producer in the US — or other countries — can make a profit extracting uranium for sale on the spot market. That’s why the world’s largest producers have significantly reduced production, including Canada’s Cameco, Kazakhstan’s Kazatomprom, the US’s Energy Fuels and a host of Australian companies
The issues are manifold: Years ago, many utilities – concerned about a run-up in uranium prices by the middle of this decade — signed long-term supply contracts that run through 2020 or so.
Worldwide uranium surplus of around 150 million pounds could last for years
Utility fuel buyers are also convinced there’s currently a worldwide uranium supply surplus of around 150 million pounds globally that will last for years. Uranium market sources say this oversupply resulted in a decrease in utility purchasing under long-term contracts, as they believe instead that the material will be available in spot or mid-term contracts in the future at attractive prices.
Many utilities buy only small amounts of uranium to meet near-term needs
Hard pressed by competition from natural gas and renewable mandates, many utilities are using just-in-time procurement, buying only small amounts of uranium to meet near-term needs.
In the virtual absence of utility buying, the market is dominated by trading companies, who often “arbitrage” prices slightly higher, or lower, to profit from month-ahead contracts. Consequently, uranium spot prices have been below the $35-a-pound breakeven point for virtually all producers since early 2015.
Even with producer cutbacks, supplies likely will outpace demand for another three-plus years, according to the World Nuclear Association’s nuclear fuel report. This will pressure uranium prices — and producers, many of whom will step up M&A activities to survive.
Uranium producers foresee a price uptick in the 2020s
Producers that do find a way to hang on say they will be in the driver’s seat when demand picks up. The ongoing production cutbacks, they aver, invariably will make uranium dear — setting up the next price boom — which they foresee sometime in the 2020s.
Until next time on the Snapshot, we’ll keep an eye on the markets.