Market trends in uranium are creating new situations in which it is becoming more difficult for utilities and producers to accommodate the requirements of each other, Nuexco’s George White, Jr says.
Addressing a recent seminar in Colorado, White talked of how the needs of one tend to impose unacceptable risks on the other, and how the time may have arrived “for financially strong and sophisticated entities to become involved in ways that will reduce risk for the principal parties.” New associations, he suggests, are likely to spring up to replace traditional ties between producers and users.
Looking into the future, White makes four observations about the uranium market:
* Uranium contracts will be characterized by substantially greater quantity flexibility.
* Increasing amounts of the mineral will be purchased on the spot and near-term markets.
* Increasing quantities of uranium deliveries will be spot-market prices.
* New commercial and financial tools and techniques will be developed to lessen business and financial risks. Dependent variable
On quantity flexibility, White says exactly how much uramium is needed by a buyer “is a dependent variable, a function of capacity factors, fuel designs and enrichment considerations.” One obvious approach, he suggests, is to build flexibility into long-term supply contracts, allowing a buyer to increase or decrease nominal tonnage.
Another alternative is for the buyer to contract for less than the required amount, and then use the spot or near-term market to acquire the balance. Or even use the spot and near-term markets to meet all requirements.
White admits his suggestion of more use by buyers of spot and near-term markets runs counter to historical data. Nevertheless, he thinks spot-market buys “are the ideal means for utilities to match uranium deliveries with actual needs.”
Regarding more purchases at spot-market prices, White believes spot-market price indicators will gain a wider popularity in setting prices in long-term contracts. “While spot-market pricing of long- term contracts has been primarily a U.S. phenomenon, non-U.S. buyers are showing increased interest in the approach, as a consequence both of the experience of U.S. buyers and of dissatisfaction with the pricing arrangements of their own contracts,” he says. White sees this trend developing gradually. Commercial, financial changes
The consequences of all of the above, he says, will be commercial and financial changes in the uranium market. Without firm pricing, he argues, financing a uranium mine from exploration to production will assuredly take a different route.
White says the central issue is one of risk. If sellers look sideways at market prices, but buyers stand firm, he says there would then be an opening for an intermediary, a role he suggests could be filled by uranium traders or equity investors.
New players, he says, would be accompanied by new commercial and financial tools and techniques. “There is no reason to believe that interest rate swaps, currency swaps and forward hedges, and even price swaps, cannot be used in the nuclear fuel market just as they are in oil and other commodities, ” he says.
“While the utilities and producers are not typically staffed or inclined to do this sort of thing themselves, it is precisely this kind of expertise that can be expected of those entities involving themselves as intermediaries.”
Be the first to comment on "Uranium market changes foreseen"