Investors might be having some trouble staying positive when it comes to the uranium market these days. Unfortunately, with the spot price insisting on moving lower, it can be hard to cast aside doubts that the market will turn around in the near future.
To help investors understand what has been keeping prices down and sentiment weak,
As most market watchers are aware, 2014 kicked off with what could be called a “reinvigoration” in the mining sector, with uranium playing a big part in that. By the end of February,
Unfortunately, as Sadowski explained, “over time it became increasingly clear that just because there is a draft energy plan in place doesn’t necessarily mean that all the hurdles are cleared for restarts.”
From what we have seen since February, the
So with that psychological barrier firmly in place, market sentiment quickly started to dwindle and prices started to fall.
Prices, producers and oversupply
Though Japanese reactor restarts are playing a definite role in keeping uranium prices from pulling ahead, they are not the only factor.
“You’ve got this overarching oversupply issue that is definitely a wet blanket on spot and term prices,” Sadowski said, adding, “there is simply too much supply out there and very limited and discretionary demand; it’s not enough demand to soak up that supply.”
When asked where that oversupply is coming from, Sadowski pointed at both primary and secondary supply sources.
While there have been some mine shutdowns and production cutbacks in the post-
So how come some companies are still operating profitably? One reason, said Sadowski, is long-term, fixed-price contracts.
“A lot of companies, like
Sadowski also highlighted new producers like
And though many companies have scaled back their production, state-backed entities such as in
With several avenues of primary supply impacting the market, the last thing we need are secondary sources adding to the equation. Unfortunately, that’s exactly what they’re doing.
Investors may have heard the term underfeeding being tossed around the marketplace lately. In the latest industry report from
As investors must, by this point, understand, producers and utilities didn’t halt their course just because demand from
That’s not what happened.
As Sadowski explained, the “Russians were taking [uranium from warheads] and blending it with old blend stock to make low-enriched uranium that was being shipped to the US. But to create the blend stock, they had to enrich lower-grade uranium. A process that was taking up capacity at the enrichment plants. But now that that process is over and they are no longer enriching that blend stock, they have the spare capacity at the enrichment plants.”
“It’s not as if that 24 million pounds went to zero all of a sudden,” Sadowski said. And though specific numbers aren’t available, supply did not go from 24 million pounds to zero. “It’s more like it went from 24 million pounds down to 12 or 15 million pounds,” he noted.
So where does that leave us?
For years now, analysts have been touting the uranium supply shortage, but looking at the current market, that prospect no doubt seems laughable.
But that’s not to say it isn’t on the horizon — the timeline has just been pushed out a little. The supply deficit that was once expected to hit the market in 2018 has been delayed until 2020 at the earliest, according to Sadowski.
Of course, that prediction is based on today’s outlook, and we all know that can change without warning. Regardless, Sadowski believes that by the early 2020s, the market will be in a deficit from anywhere between 10 and 30 million pounds.
“That’s when we are going to need new projects. And existing operations cannot ramp up their production enough to offset that deficit, so we are going to have to see new mines up and running by that time,” he concluded.
With uranium’s long-term story a lot more positive that the short term, stay tuned for David Sadowski’s view on which companies he thinks can weather the storm.
Securities Disclosure: I,