RE:RE:RE:China remains guaranteed uranium market for KazakhstanThanks MM. There is a very interesting situation developing in this market. Firstly, whether you buy fuel for your reactor depends on wheether you need enriched fuel (PWR/BWR) or whether you need natural Uranium fuel (CANDU plants). For the latter (Canada, India ,Argentina and Romanian CANDU plants) all you need is U3O8 to convert into UO2 and you can probably afford to buy U3O8 at depressed prices and stockpile it. If you operate PWR or BWR plants the situation requires a bit more thought. Those plants need enriched Uranium of around 4% which means they first have to line up a uranium enricher who has a couple of options. The enricher can take natural Uranium and enrich it to 4% or can take Uranium tailings in the form of depleted UF6 and enrich it to 4%. The number of separative work units required to enrich tailings is higher than that required to enrich nat. U to the same enrichment. Enrichers cannot operate at a loss...they will go broke but the number of SWU's will depend on how much demand there is and whether the reactors being supplied are new or older units that have been on line for a while. Older units will reorganise their cores at each refuelling and only need Uranium for about 1/3 of their core. A new plant will require a whole new core...or 100% of the core is fuelled.
Enrichers are in business to make money but they need to keep their centrifuges operating continuously which means they must strike a balance between the number of SWU's they keep in service. They make more money ny enriching from 0.7% Nat U to 4% U than they do from 0.6% Tailings to 4% U and that affects the demand for U3O8.
Also to muddy the waters still more, many utilities have programs designed to acheive higher fuel burn-up. That is they can better utilise the fuel they already have by keeping it in the core longer. It is also a reason why fuel buyers have not been rushing to the Uranium store to buy more fuel. They are using what they have much more effectively. But the oversupply days are numbered. How long we have to wait is driven almost entirely by the speed of Japanese restarts and is why I keep harping on the crticial piece of the puzzle.
Japanese plants are all PWR and BWR designs. They all need enriched Uranium. As they restart the fuel buyers are buying enriched Uranium from enrichers to make into UO2 pelletes for manufacture into finished fuel elements. They do not need U3O8 (yet) but they do need enriched Uranium. Both fuel manufacturing plants in Japan are now operational and they are slopwly working through the utility stockpile of Uranium. Now as demand from the utilities for enriched Uranium scales up enrichers will cease tailings underfeeding and focus on enriching from a Nat U starting point. That does TWO things. First it increases demand (or uses up inventory) of U3O8 and secondly it stops enrichers from making Natural Uranium to sell into the spot market.
There are several Japanese restarts scheduled for this year and I estimate about 25% of the fleet will be back in service by the end of 2018 (10 reactors).
While it may not immediately increase demand (they will initilly be using stockpiled Uranium and fuel elements previously in core) it will increase demand on enrichers. So the market is steadaily going to drift from oversupply to undersupply as inventories both at mines (Langer Heinrich is processing inventory right now...no new produiction from the mine itself - CCO is using up its inventory and buying spot product because it is cheaper to do that than operate McArthur River) and at the utilities themselves is used up.
The crunch will come when the utilities and the miners can see the bottom of the inventory barrel and that is when the panic buying will start. Personally I do not think this will happen in 2018...although I am prepared for it if it does. My timeline is out to 2020 to 2021 and I am accumulating positions across the board in the Uranium space in preparation for that.
I think anyone expecting a rapid move this year could be disappointed but the trend is moving from oversupply to undersuppply over the next few years and all it will need is a triggering catyalyst to start off the next buying cycle.
Miners will need to factor in the cost of mining the product plus the cost of restarting shutdown mining facilities as well as covering losses incurred during the last few years since 2008. That is why I think the price must go higher than the production cost....hence my $200/lb forecast....at least for a while until enough money is back into the miners pockets to make the enterprise worthwhile once again.
But many things could happen in the meantime. Hope that helps
Malcolm