Uranium Jumps on ERA's Woes

The global significance of Energy Resources of Australia’s (ERA) Ranger uranium mine and its uncertain potential for expansion was driven home last week in the spot uranium market. ERA announced it would have to close its processing plant for three months and the spot price responded with a US$3 jump to US$72/lb.

This is the first time the price has been over US$70 since 2008 and reflects a backing off in price from sellers in the market, according to industry consultant TradeTech, and a simple backing out of the market by many as well.

The irony for ERA is of course that while losing from lost production it wins from higher uranium prices on new contracts. The twist is the company will need to make up the shortfall on existing obligations and that has the spot market expecting to see ERA in as a reluctant buyer. Management has suggested current inventories will cover that shortfall, but the sellers are not taking the risk.

Spot supply was already thin ahead of Australia’s wet weather, Tradetech notes, which has been reflected in the uranium price’s steady rise. Now it’s even thinner. Six transactions totalling 1.2mlbs were reported in the market last week and new demand continues to emerge.

The term market, which better reflects the longer term contract nature of uranium pricing, is also seeing new demand albeit the mid-term price indicator remains steady at US$64/lb and the long term at US$67/lb.

Experience from 2007 suggests these term prices can stay fairly stable even if the spot price decides to again run amok.

Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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