By Greg Peel
US federal regulators have been turning the screws on global investment banks operating in the US, in more ways than one. Following on from accusations of manipulation in the energy market by JP Morgan's commodity trading business, involving the bank buying and storing volumes of physical crude, further accusations were made that various US investment banks were manipulating base metals markets through the warehousing of physical metal.
In short, the US regulators are moving to ban investment banks from physical commodity warehousing as part of their commodity derivatives businesses. The first bank to respond to this move in the uranium market was Goldman Sachs, which last month announced it was putting its uranium trading business, and physical inventories held, up for sale. Last week Deutsche Bank announced it was looking to scale back activities in physical energy and metal markets.
Deutsche will be exiting uranium trading, and industry consultant TradeTech believes uncertainty regarding the stability of the intermediary demand into the new year is impacting on spot market activity. Last month holders of uranium inventories started to offload ahead of year-end, but news of various supply-side developments (the end of the Russia-US warhead agreement, the mothballing of the Honeymoon mine, Kazakhstan's expansion curtailment, cost cutting from major miners etc) encouraged the sellers to step back and allow the buyers to play the chasing game. The result was an apparent change in spot uranium's fortunes and a possible bottom having been seen. But that recovery has proven short-lived.
Sellers looking to square positions ahead of year-end became aggressive again last week, TradeTech reports. Concern over the loss of investment bank intermediary demand has hastened the sellers' resolve. Eight transactions involving 900,000lbs of U3O8 equivalent were reported with utilities and speculators on the buy-side and producers and speculators on the sell-side.
TradeTech's spot price indicator has fallen US$1.40 to US$34.50/lb. One transaction was reported in the term market, but TradeTech's term price indicators remain unchanged at US$39.00/lb (mid) and US$50.00/lb (long).
Subsequent to last week's activity, Energy Resources of Australia's ((ERA)) Ranger mine suffered a burst leach tank which forced a production shutdown. Ranger is situated on the edge of the environmentally fragile Kakadu National Park, which complicates hopes of rapid restart of a mine representing 4% of 2013 global production. Niger has also announced it will now officially delay the development of its giant Imouraren mine. The supply side continues to respond to an environment of weak uranium prices.