Market Update & Important Indicators
U.S. stocks were little changed Thursday, pausing after a two-session losing streak, as investors focused on Europe's stimulus measures and looked ahead to the U.S. jobs report. The Dow rose 0.2% to 18,136 and the S&P 500 was flat at 2,101.European stocks climbed to multiyear highs Thursday as the European Central Bank further outlined its massive asset-buying program, setting a time for the launch of the trillion-dollar program for Monday. Germany's DAX 30 ended a fresh all-time high as it jumped 1% to 11,504.0. The U.K.'s FTSE 100 also its best close on record as it rose 0.6% to 6,961.1.
China stocks fell Thursday after the country lowered its growth forecast for the year, bringing concerns about a slowing economy to the forefront. Chinese Premier Li Keqiang said leaders were aiming for about 7% economic growth after a 7.4% expansion last year, the slowest in more than two decades. The Hang Seng Index fell 1.1% to 24193.0 and the Shanghai Composite Index was down 1%.
Tin was the only looser on the LME with prices down 0.3% with all other base metals higher with the largest increase in Nickel, up 1.9%. Brent crude fell 0.9% to $60.45/bbl and gold lost 0.2% to $1,200/oz.
Metals on the LME were mixed with copper falling 0.1% to US$2.66/lb and nickel rising 1.9% to US$6.41/lb. Gold was down 0.2% to US$1198/oz, while iron ore once again breached US$60/dmt.
Argonaut thought for the day – Chinese reactor restarts
China bleeps the geiger counter
China has approved construction of its first nuclear power project since the Fukushima disaster in Japan. China’s State Council gave the go-ahead to begin building two new reactors (reactors 5 and 6) at China General Nuclear Power Group’s Hongyanhe plant in the country’s northeast.
China currently has the largest build program with 26 reactors under construction and a further 64 planned. The country’s current aspirations are to generate 58GWe nuclear power by 2020 and 150GWe by 2030. However, Argonaut sees the likelihood of an acceleration in the build program highly probable, driven by clean air issues and a move away from coal fired power. We also foresee faster reactor build times as technology is adopted in-country.
US most likely to move first
In our view the US will be the first to re-enter the market with any vigour. Open reactor requirements for US utilities are estimated at ~50% in 2018. Given the US’s common procurement horizon of 18 months to two years, we expect increased contracting through CY15. The US still represents the single largest market with ~100 reactors.
Japan overhang remains
Whilst hard to estimate, Argonaut believes Japan has a surplus U3O8 (equivalent) inventory of 50-60Mlb (assuming 60% reactor restarts out to 2020). While we expect some of this material to re-enter the market, we place a low probability on a price damaging liquidation.
Europe likely to be in surplus
We estimate surplus inventories of 20-25Mlb for European utilities (~130 operable reactors) and do not expect significant contacting from this part of the world in the in the near term. However, the Europeans often contract well in advance (average nine years for 2013 deliveries) and the prospect of long dated contacts, taking advantage of current low prices, cannot be dismissed. One example is Électricité de France’s (EdF) prepayment agreement in 2013 with Paladin Energy for uranium to be delivered between 2019 and 2024.
Maintaining positive on the sector
Argonaut remains bullish on the uranium sector in the medium to long term, with the prospect of a looming deficit driven by a lack of low cost projects under development and an unprecedented global reactor build program. We estimate realised prices of US$70-80/lb are required to incentivise and finance new higher cost / lower grade projects. Year to day the spot uranium price is up 12%, currently trading at US$35.65/lb.
Recent Contacts & Presentations
Dacian (DCN), West African Resources (WAF), Northern Star (NST), Saracen (SAR), Doray (DRM), Rewardle (RXH), Doray (DRM), Alexium (AJX), Orbital (OEC), IMF Bentham (IMF), Metals X (MLX), Pura Vida (PVD), Tangiers (TPT), ABM Resources (ABU), Pacific Energy (PEA), MMA Offshore (MRM), Tox Free (TOX), Commodities Group (COZ), Pioneer Credit (PNC), Rift Valley (RVY), Austal (ASB), Ausdrill (ASL), Gage Roads (GRB), Atrum Coal (ATU)