TD Report " No signs of a turnaround in the uranium market" The Ux Consulting (UxC) spot uranium price declined last week to $18.25/ lb (-$0.25/lb). The November month-end term price dropped to $32.00/lb - a decline of $4/lb, or 11%. The three-year and five-year price indicators were also lower at $21.75/lb and $26.00/lb, down $0.25/lb respectively.
SWU prices continue descent - We have added the month-end SWU price chart to our weekly report (Exhibit 6). Separative Work Units (or SWU) are the amount of separation done by an enrichment process and is a function of the concentrations of the feed-stock, the enriched output, and depleted tailings. SWU is expressed in units which are calculated so as to be proportional to the total input (energy/ machine operation time) and to the mass processed. SWU prices have declined as demand for enrichment contracted post the closure of the Japanese nuclear fleet. A reversal of the decline in SWU prices may serve as a leading indicator of an improvement in uranium demand and prices.
UxC highlights S/D imbalance - UxC estimates that the uranium market is oversupplied by ~20 million pounds per year. UxC also notes that many utilities are well-covered through 2019/20 as a result of heavy contract activity over the period 2005 through 2012. The standoff between producers (higher priced contracts) and utilities (high inventories and strong contract coverage) is best demonstrated by weak spot and contract volumes. UxC expects the uranium market to be in surplus by 24 million pounds in 2017.
Term price decline reflects price pressure in spot and mid-term markets – New term demand entered the market over the past week with several utilities either close to announcing contract selections or preparing RFPs. Term demand YTD totals only 40 million pounds, well below the 77 million pounds at this time last year. 2016 term demand could end the year at the third lowest level in 12 years.
No signs of a turnaround in the uranium market - With utilities well-supplied, we expect uranium demand to remain highly discretionary. We believe that the incentive price for uranium projects is in the range of $55/lb, but recognize that the need for new uranium mine production is well into the future—our LT price is achieved in 2023.