U3O8 Price Update: Q3 2019 in Review

The U3O8 spot price remained relatively flat for the majority of Q3, similar to its Q2 activity.

Continued uncertainty about the US Section 232 uranium import investigation weighed on the sector, preventing the spot price from climbing above US$26 per pound.

In early July, the U3O8 spot price sat at US$24.60, before climbing to US$26.20 by mid-month.

However, that price growth was short lived, and by the end of July uranium had slipped to US$25.30, remaining rangebound for the rest of the quarter. Currently the U3O8 spot price is US$25.65.

U3O8 price update: Sector still awaiting action

The long-awaited Section 232 decision was handed down in July, but the lack of concrete actionable items has left ambiguity in the sector. In his decision, US President Donald Trump signaled the creation of a new exploratory committee, the US Nuclear Fuel Working Group, which he has tasked with reviewing the entire domestic nuclear fuel cycle and supply chain.

Prior to the decision, there had been speculation that Washington might implement domestic quotas of anywhere between 15 and 25 percent, which bolstered the price in early July. However, without a definitive decision in the announcement, U3O8 quickly slid back into the US$25 range.

While a proposed domestic quota was the end goal of US producers, utilities companies have been adamant that they do not support such a move.

“You have got competing views on (domestic quotas) between the miners and the utilities. That will have to be worked out, but it really has put a damper on the price and no one is buying in the spot market. There is just no liquidity,” Mercenary Geologist Mickey Fulp said.

The longtime sector watcher believes utilities and other uranium buyers will be coming to market soon in order to meet their contracts; however, when that will happen is unknown.

He noted that there is speculation that sector major Cameco (TSX:CCO,NYSE:CCJ) will need to purchase between 10 million and 12 million pounds of the energy fuel to fulfill its contracts.

Cameco could need to purchase off the spot market to meet these demands because the company has temporarily shuttered its largest uranium mine, McArthur River in Saskatchewan.

“It’s an opaque market, but the general thinking is they haven’t bought any yet, so where is that uranium going to come from?” added Fulp.

In late July, the Investing News Network (INN) spoke with veteran investor Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF) about the uranium market and when he sees it shifting from bearish to bullish.

“I see gold moving this year and uranium moving next year,” said Rule. “But the truth is that when uranium markets move the impacts on uranium stocks are more dramatic than any other stocks in the resource sector … When the uranium price does move, the anticipation that you’ll see from investors crowding into the few remaining uranium stocks on the planet, I think, will be very dramatic.”

For every optimist there is at least one pessimist, and for uranium that is Jayant Bhandari. INN spoke with the financial analyst in August, and he wasn’t convinced that uranium is heading into bull territory.

“Unless you think your mining company makes money at US$25 per pound of uranium, it makes absolutely no sense to participate in this hype,” Bhandari said while in attendance at the Sprott Natural Resource Symposium. “People get caught up in these trends and (the) hype of any specific commodity, and they lose a lot of money and you see empty conferences.”

U3O8 price update: Supply and demand

As mentioned, sector major Cameco plays an influential role in the uranium sector. In late July, the Canada-headquartered company announced it will not be restarting production in Saskatchewan until the spot price makes upward movements.

“So there is some progress being made on the issues creating uncertainty for market participants,” Cameco CEO Tim Gitzel wrote. “However, make no mistake, there is still a long way to go before we decide to restart McArthur River/Key Lake. We can’t lose sight of the fact that, while we have a true value strategy, there are still others in our industry who lack conviction, experience, or are still over-producing their committed sales volumes and using the spot market for surplus disposal.”

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