The Energy Report - Mon, Nov 13, 2017

Uranium Production Cuts 'Very Positive' for Market

Rob Chang, an analyst with Cantor Fitzgerald, discussed how one uranium company's upcoming facility closures should affect the market.


Cameco Corp. (CCO:TSX; CCJ:NYSE) intends to halt uranium production at its McArthur River and Key Lake operations for 10 months beginning in February 2018, Chang reported in a Nov. 8 research note.

He indicated this "major production cut" will drop total estimated 2018 uranium production by about 9%, which equals about 13.7 Mlb.

As for the overall effect this could have on the market, Chang concluded, "We expect strength in uranium prices and equities on the back of this news. This is the type of supply shock that will spur strength in the spot U3O8 price as a significant amount of expected production for 2018 is removed."

The analyst qualified those statements, however, noting the change may be slow to take effect for three primary reasons:

1. The market is "less efficient" due to the limited number of existing, qualified uranium purchasers today, Chang wrote.

2. Utilities are not under pressure to buy uranium soon, the analyst noted. They have "shored up what were once large shortages through spot purchases or short contracts," leaving an estimated under 10% of total uranium demand for 2018 and 2019 "uncovered."

3. Current inventory levels could "dampen" the expected price movement, said Chang. "We estimate that there are 800-1,200 Mlb of total above-ground inventory of which about 700-800 Mlb are held by utilities." However, not all of that supply is available for purchase, as significant portions are held for strategic purposes and necessary utility needs."

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