Saturday, May 17, 2014

Uranium Slides as Banks Reduce Outlook Amid Japan Delays

Delays in restarting Japan’s nuclear reactors are prolonging a uranium supply glut that’s driven prices to an eight-year low, making banks from UBS AG to Credit Suisse Group AG less bullish on the fuel.

Uranium dropped to $29 a pound on May 2, the lowest since June 2005 and extending this year’s drop to 16 percent, according to TradeTech, a Denver, Colorado-based consultant to the nuclear industry. UBS reduced its 2014 forecast by 9 percent last month as Credit Suisse cut its projection by 7 percent.

Kansai Electric Power Co. (9503) and other utilities are taking longer than expected to restart reactors that closed after the Fukushima disaster in March 2011 as Japan’s nuclear regulator seeks more safety checks.

While producers from Australia to Africa shut mines as prices retreated to unprofitable levels, Raymond James Ltd. is among those who say supply will still outstrip demand this year.

“There is too much supply floating around the marketplace and demand is highly limited,” said David Sadowski, a Vancouver-based analyst at Raymond James, a financial adviser, who cut his 2014 forecast by 14 percent to $36 a month ago.

“Japanese restarts are the key catalyst to get utilities to resume long-term contracting, which should support prices.”

Uranium for immediate delivery averaged $33.93 this year, compared with $38.47 in 2013 and $46.27 in 2010, the year before the earthquake and meltdown of the Fukushima Dai-Ichi plant and subsequent closure of Japan’s reactors for safety checks. Uranium closed at $28.40 yesterday on the New York Mercantile Exchange.

Safety Checks

Kyushu Electric is among eight companies that applied for safety inspections on 17 reactors, according to Japan’s Nuclear Regulation Authority. The Fukuoka-based utility will resubmit a safety report on its Sendai plant as early as this month, Hiroki Yamaguchi, a spokesman, said May 12.

That may delay what was expected to be the first restart, according to TradeTech. Kansai Electric said it may take a “long time” to resume its Takahama and Ohi nuclear plants as it reviews earthquake safety standards, according to an April 23 statement to the Tokyo Stock Exchange.

Akihiro Aoike, a Tokyo-based spokesman for the company, said the company can’t comment on when it might restart the reactors. Six units may resume this year, Cantor Fitzgerald LP said in an April 11 report, cutting its January forecast for 12 to resume.

The country has been without atomic power since September, when the last reactor shut for checks.

‘Low Levels’

In a draft energy report last month, Japan’s government reinforced atomic power’s role in energy supply, despite public opposition to nuclear plants.

That’s boosting analysts’ optimism for a rebound in uranium prices, with the average of eight forecasts compiled by Bloomberg indicating an average of $52.50 next year, from $39.50 in 2014.

The first of Japan’s 48 idled reactors may restart next month, according to Morgan Stanley, which lifted its forecast by 4 percent to $38.84 in an April 8 report. The bank estimates that nine plants will resume this year.

The global surplus of uranium will narrow to 4.4 million pounds this year, from 27.7 million in 2013, according to Morgan Stanley. The bank estimates a shortfall of 4.9 million in 2015. The meltdown of three units at Fukushima forced the evacuation of about 160,000 people because of radiation.

Sixty-nine percent of respondents to a poll in March published by Tokyo Shimbun said atomic plants should be phased out. The poll surveyed 3,000 people with a 58 percent response rate.

Forecasts Cut

UBS reduced its 2014 forecast for uranium on April 9 to $39, while Credit Suisse cut its estimate to $38.80, according to an April 1 note.

The exit of traders such as Goldman Sachs Group Inc. from the market is also reducing transactions, according to Roswell, Georgia-based Ux Consulting Co. Deutsche Bank AG is cutting back parts of its commodities business including uranium, Nick Bone, a London-based spokesman, said by e-mail May 7.

Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment in an e-mail on the sale of its unit trading the fuel.

“The uranium market has been subdued,” Jonathan Hinze, a senior vice president at Ux, which provides research on the nuclear industry, said in an e-mail. “Some of this is caused by the departure of Goldman Sachs and Deutsche.

We therefore have fewer primary traders in the market leading to less liquidity.” Prices are below the marginal cost of production of $35 estimated by UBS.

Paladin Energy Ltd. said in February it will halt its Kayelekera operation in Malawi while Russia’s Atomredmetzoloto last year shuttered Honeymoon in Australia. Kazakhstan, the world’s biggest producer, said in November it will halt all projects to increase output after the decline.

Paladin, which gets all of its revenue from selling uranium, fell as much as 4.6 percent today in Sydney trading.

“The next 18 months we see as being a very difficult period for the market,” Tim Gitzel, the chief executive officer of Canada’s Cameco Corp. (CCO), the world’s third-biggest uranium producer, said in an interview May 8. “We continue to look to the future. The future is bright for nuclear energy.”

bloomberg.com

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