By Greg Peel

As at the end of March, industry consultant TradeTech's spot uranium price indicator sat at US$58.50/lb, down US$1.50 from the previous week and down US$11.00 from end-February. The big drop reflects the panic surrounding the disaster at Fukushima and its potential longer term impact on uranium demand.

In the thinly traded spot market, panic selling has been driven by speculators caught out on positions and speculators were still selling last week, Trade Tech notes. But speculators were also evident on the buy-side at these lower levels along with producers and utilities. A total of eight transactions totalling 900,000lbs of U3O8 equivalent were concluded last week, but the consultant notes demand is discretionary and price sensitive.

“Neither buyers nor sellers are exhibiting a strong willingness to move from their respective positions,” notes TradeTech in its monthly wrap, “as both sides struggle to gain clarity about the potential short-term and long-term impacts of the events in Japan”.

With regard to longer term implications, BA-Merrill Lynch notes Kazakhstan's state-owned uranium producer Kazatomprom has announced it will increase production in FY12 by only 2% over FY11. The market had been anticipating an increase of 10%, and as such the Kazakhs are clearly flagging an intention to support uranium prices in the new environment of uncertainty.

In 2008, Kazakhstan was producing 19% of global uranium supply but that figure is expected to reach 35% this year, Merrills notes. The Kazahs are thus now in a position to control global pricing through supply manipulation just as OPEC does with oil and Qatar with LNG. But beyond noting Kazakhstan's ability to control prices, the question remains as to just what impact Fukushima really will have on the world's desire for nuclear power.

Even before we get to that point, Merrills suggests the market is currently ignoring current disruptions on the supply-side (wet weather in the Northern Territory is one example) in the short, medium and longer term time frames. Such disruptions should keep the uranium price supported. But then the question becomes one of whether plans to build new nuclear capacity in the “countries that matter”, as Merrills puts it, being the likes of China, South Korea, Russia and others, will change at all. Merrills thinks not.

Germany might be a different matter, and now that the Greens have won greater political influence chances are Germany's nuclear ambitions out to 2020 might be reassessed. China will not be the same kettle of fish however, and Chinese officials have already suggested no change to plans other than a more stringent review of reactor safety.

With Kazakhstan controlling the price of uranium, China has been out securing long term supply agreements with, and opportunistic equity stakes in, various uranium producing companies across the globe including in Australia. Merrills also sees South Korea moving to become more active in this game as it looks to shore up its energy self-sufficiency.

In other words, Merrills does not see much in the way of long term impact on the uranium market as a result of Fukushima.

In the meantime, TradeTech has adjusted its medium and long term uranium prices for the first time in a while, as a result of the market response to Japan. The medium term price indicator falls US$11.50 to US$62.00/lb and the long term falls US$2.00 to US$68.00/lb.

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