CRU: Chinese Uranium Stockpiles Limit Spot Price Upside

LONDON, April 29, 2019 /PRNewswire/ -- China's uranium inventory build-up has supported global market demand over the last decade – it accounted for 27% of global demand in 2018. Expectation around further Chinese nuclear expansion is the strongest case for long-term bull market. With few domestic resources, China needs to obtain future supply security to limit market exposure. Prolonging current low prices will help China to acquire assets more cheaply.

Currently, uranium production assets can remain cash positive thanks to long-term contract prices that are usually above spot prices. However, utilities around the world are increasing their share of spot contracts due to low prices. In this environment, vast accumulated uranium stocks are positioning China as a market maker and depressing uranium prices. China will make the most of the favourable (low) uranium asset prices to continue acquiring overseas assets for long term supply security and meeting its growing reactor uranium demand.

China has decreased uranium purchases following unprecedented supply cuts in 2018

In November 2017, McArthur announced a 10 month shutdown, then in December 2017 KazAtomProm announced a 20% supply reduction from Kazakh mines, prompting a 19% jump in uranium spot prices from $19.9/lb in late October 2017 to $23.7/lb U3O8 by the end of the year. In response in the first half of 2018, Chinese utilities substantially decreased uranium purchases and inventory accumulation fell to the lowest level seen since the start of China's inventory build up in 2010.

Historically, Kazakhstan supplied Chinese spot purchases and production was closely aligned with inventory accumulation volumes in China. Already in a first half of 2018, uranium imports from Kazakhstan to China has halved. As a result, uranium prices fell slightly from $23.7/lb U3O8 in January 2018 to $22.7/lb U3O8 in early July 2018. It was only the subsequent July 2018 announcements of the Yellow Cake IPO and indefinite shutdown at McArthur mine that has pushed prices back up from $22.7/lb U3O8 to $25.7/lb U3O8 during July 2018.

We believe Chinese utilities were cautious not to spark major bull sentiment in the market, thus inflating prices, which possibly would have provided a lifeline to marginally costly mines.

Read the full story: https://www.crugroup.com/knowledge-and-insights/insights/2019/chinese-uranium-stockpiles-limit-spot-price-upside/ 

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