Published on Tuesday March 08 2011
The Uranium Spot Price had been sailing furiously northward when a couple of weeks ago a large non-industry seller came into the market with an order of 800,000lbs to sell and sparked a blow-off top. Having peaked at US$73.00/lb a month ago, last week spot uranium fell US75c to US$66.75 on the basis of industry consultant TradeTech's price indicator.
Last week four transactions were concluded totalling over 400,000lbs, TradeTech notes.
Spot uranium had been trying to consolidate after the one big sell order clipped the runaway rally, but news from the US government during the week rather took the wind out of the uranium market's sails.
The US Department of Energy announced it would transfer a total of 4.2mlbs of U3O8 equivalent out of government stockpiles over the period 2011-13. The intention is to raise funds for the ongoing clean-up of the Portsmouth, Ohio, enrichment facility. The expectation is that the material will be sold at spot, albeit Requests for Proposals from the buy-side have been sought. One thus assumes the DOE will not simply be slapping every bid.
The total amount for sale will be evenly split into quarterly amounts of 300,000lbs. This overhang will no doubt serve to cap the market in the near term. Macquarie analysts nevertheless note that the release of DOE reserves has been expected and has been factored into price forecasts. The announced amount, however, is about 60% more than assumed. So Macquarie suggests the news is “incrementally bearish”.
One is reminded, nevertheless, that for ten years the gold market had been continuously hit with European central bank selling, and that more recently the International Monetary Fund announced it would be selling a large amount of reserves into the market in an orderly fashion over five years. The DOE's intentions seem similar.
As it was, India popped up and bought half the IMF order off the bat, and other central banks have also since chipped away. The moral is that the DOE's order will not necessarily kill the uranium market, but the uranium spot market is indeed vastly thinner than the gold spot market (if futures trading is included).
What this does mean is that those genuine buyers needing some decent volume, be it a utility or perhaps a producer short on production to meet contract obligations (think ERA for example ((ERA))), need not have to play games with smug hedge funds or other speculative sellers if it can just negotiate a price with the DOE and avoid sellers that back off when they see a buyer coming.
It also means that uranium will be unlikely to “do a 2007” again and run up to ridiculous levels above US$100/lb, whether or not it was going to do that again anyway.