Uranium industry focuses on costs as supply glut continues

Uranium miners and traders are suffering from oversupply, low prices, lack of liquidity and low demand from utilities, and have little to no expectation of improving market conditions in the short- to medium-term, uranium market participants said during the World Nuclear Fuel Cycle conference.

 The conference was in Abu Dhabi early April. Since December 31, uranium prices have dropped by close to 20%, reaching a low of $25.50/lb April 15, the lowest daily spot price reported by the company since 2005, according to TradeTech data.

Nick Carter, executive vice president, uranium with price reporting company Ux Consulting, said in a conference presentation that the spot uranium price could stay in the low $30s/lb “for quite some time” because of an excess near-term supply of about 25 million to 30 million lb U3O8 from 2016 to 2019.

Carter does not see a supply deficit in the market until “the late 2020s” due to the current supply glut.

Further complicating the supply picture, uranium enrichment companies are using their extra enrichment capacity to bring an estimated 15 million lb U3O8 equivalent to the market annually by driving down their operational tails assay, according to Ruthanne Neely, UxC senior vice president of enrichment and general counsel.

When enrichers are in overcapacity, they can "underfeed" — that is, use less uranium for the same resulting enriched uranium product — and sell the excess uranium back into the market.

Neely estimated that there is “over 60 million SWU in excess inventories” in the form of EUP that can be sold on the market.

There is so much EUP material that finding storage space is difficult, she said. Given current requirements, she said the inventory would only be drawn down by 2028.

“It’s going to be around for a while,” Neely said.

On the sidelines of the conference, where spot and term uranium transactions are often negotiated, the mood of uranium producers and traders was pessimistic.

“There is no demand anywhere. Even in China. There is just too much material,” said one uranium trader.

“Everyone is just trying to survive,” he said. The trader said that Cameco’s trading arm, Nukem, had been forced to lay off 15 of its 70-member staff.

'Absolutely no liquidity'

One uranium producer said that there was “absolutely no liquidity in the market.”

The low prices, below $30/lb, have meant that producers are refusing to conclude term contracts and prefer to wait for an upturn.

However, it is not clear when market conditions will improve.

“I don’t see anything that could change market dynamics in the short to medium-term,” the uranium trader said.

He said he thought prices could fall lower than $27/lb and force mine closures, with African mines potential candidates for closure.

Since the conference, Cameco said it would reduce its annual uranium production in 2016 by more than four million lb U3O8, suspending production at its Rabbit Lake facility in Saskatchewan, Canada, and scaling back production at two of its US facilities.

A third uranium producer said the problem in the uranium industry is that some producers invest “without any economic rationale,” such as China General Nuclear Power Corp.'s Husab mine in Namibia that will be commissioned this year. He said he estimated that mine’s operating costs at between $70/lb-$80/lb.

However, other market participants said they believed the lack of term contracting activity between utilities and producers would have repercussions, ultimately, on supply availability in the medium term.

“Utilities will have a lot of uncovered demand in the next few years” that they are going to have to satisfy because no contracts are being signed at current prices, one of the participants said.

Cost reduction continues

But the focus of the industry is clear at the moment: reduce costs.

The cost to produce uranium dropped by an average of $2/lb from the 2014 level to $39/lb in 2015 with the reduction being driven by low diesel prices as well as currency depreciation relative to the US dollar, according to Carter.

Still, Carter said that more than half of total available uranium capacity has costs above $30/lb. And the first uranium producer said some uranium mines had already reached their limit in terms of cost reduction.