Japanese utilities start selling uranium fuel into depressed market

Company accounts for the financial year ended in March showed that nuclear fuel valuations ranged from nearly two times market capitalization in the case of Hokkaido Electric Power to 16 percent for Chubu Electric Power. (Reuters)
Updated 23 August 2019

Japanese utilities start selling uranium fuel into depressed market

  • Sales by Japanese utilities “are definitely showing up more in the market”

TOKYO: Japan’s nuclear operators are starting to sell some of their huge holdings of uranium fuel, as chances fade of restarting many more reactors eight years after the Fukushima nuclear disaster.
The sales so far have been small, but were made at values well below their purchase price and are likely to further depress the already beaten-down uranium market, say two senior market specialists.
They could also focus attention on the balance sheets of the country’s utilities, bolstered by holdings of nuclear fuel valued at 2.5 trillion yen ($24 billion), a figure that market experts say is highly unrealistic.
“Given the extended shutdown of our reactors, we are selling uranium as well as canceling long-term contracts where necessary,” Japan Atomic told Reuters in a statement.
The company, which is yet to receive all the regulatory approvals needed to restart reactors at either of its two nuclear stations, declined to provide further details.
Before the meltdowns at Tokyo Electric Power’s Fukushima plant in March 2011 after an earthquake and tsunami, Japan was the world’s third-biggest user of nuclear power behind the United States and France, operating 54 nuclear reactors.
It is permanently shutting 40% of its facilities and just nine of the 33 remaining have restarted. With reactors also being closed in the United States, Germany, Belgium and other countries, traders and specialists say the market is likely to remain depressed for years.
Unlike other commodities such as crude oil, most of the nuclear fuel market is privately traded, generally on long-term contracts, although CME Group’s NYMEX has a futures contract for uranium oxide (U308).
The contract is settled on prices supplied by US-based UxC LLC and is currently trading at about a third of where it was before Fukushima. US based UxC, LLC also calculates prices for converted and enriched uranium.
Sales by Japanese utilities “are definitely showing up more in the market,” said one US-based market specialist, who requested anonymity because of the sensitive nature of the industry.
“Some are selling uranium, some are selling more upstream products or services,” such as enriched uranium, he said. “Japanese inventory is a big overhang in the market.”
A senior fuel trader told Reuters his company had purchased nuclear fuel from a Japanese utility but declined to give details.
Japan Atomic was responding to a Reuters survey of 10 Japanese utilities that have operated nuclear plants. All the other utilities declined to comment on whether they had sold any nuclear fuel.
One said it adjusts supplies for optimal inventory levels and three said they have delayed deliveries of fuel.
Tepco in 2017 canceled a supply contract with Canadian uranium fuel producer Cameco, which was awarded $40.3 million in damages last month by an arbitration panel.
“Tepco has made efforts to reduce its holdings of nuclear fuel, such as by partly reducing uranium purchase contracts,” the company told Reuters, without giving further details.
Unlike in Europe and the United States, Japanese utilities are not required to mark to market their fuel holdings. They are booked on Japanese operators’ balance sheets as fixed assets at the purchase price, the utilities told Reuters.
“If the utilities are not going to use the fuel, and it is unlikely they will get many more reactors going, then at some point they will have to take losses on their holdings,” said Tom O’Sullivan, the founder of energy consultancy Mathyos Japan.
Company accounts for the financial year ended in March showed that nuclear fuel valuations ranged from nearly two times market capitalization in the case of Hokkaido Electric Power to 16 percent for Chubu Electric Power.
Sector-wide the nuclear fuel valuation is nearly 50 percent of the market value of the nine publicly traded utilities, calculations by Reuters showed.
Japanese utilities also count spent fuel that is being reprocessed into highly toxic plutonium for future use in reactors as an asset on their balance sheets.
The country has the world’s biggest inventory of plutonium held by a state without nuclear weapons, but experts say it may be more of a liability than an asset.
“That is not something they can sell and get paid for,” said Tomas Kaberger, energy and environment professor at Chalmers University of Technology and a board member of Swedish nuclear operator Vattenfall.
“It is something they will have to spend a lot of money on to build a repository for that can last a few hundred thousand years,” Kaberger said.


Investment and energy experts welcome ‘sensible’ Saudi Aramco IPO valuation

Updated 34 min 12 sec ago

Investment and energy experts welcome ‘sensible’ Saudi Aramco IPO valuation

  • Price regarded as a sensible compromise and that it will sell the IPO
  • Experts said the Aramco valuation was justified by the financial metrics

DUBAI: Investment professionals and energy experts delivered a mainly enthusiastic response to the pricing of shares in Saudi Aramco and the overall valuation of the biggest oil company in the world at between $1.6 trillion and $1.7 trillion.

Al Mal Capital, a Dubai-based investment bank, said that it was positive on the Aramco initial public offering (IPO) on that kind of valuation, which it said was justified by the financial metrics.

“We believe Aramco’s IPO is a central pillar of Saudi Arabia’s Vision 2030. In our view, the broader privatization of state assets will likely accelerate the flow of foreign capital into the Kingdom, improve liquidity and transparency as well as continue to help diversify its economy away from its dependency on oil. While many investors were skeptical about the ability of Saudi Arabia to roll out its ambitious agenda, they seem to be right on track.”

Tarek Fadhallah, chief executive officer of Nomura Asset Management in the Middle East, said via Twitter: “My first impression is that the price is a sensible compromise and that it will sell the IPO. Aramco should easily raise the $8.5bn from retail investors but the 29 global coordinators, managers and financial advisers will need to find the other $17 billion. A few billion from China would help.”

Robin Mills, chief executive of the Qamar Energy consultancy, said; “I think it’s a reasonable compromise. The price is well above most independent valuations but well below the aspirational price. It implies dividend yields a bit lower than the super-majors (the independent oil companies), but a similar price earnings ratio (the measure of the share price rated according to profits). Retail and local investors should be sufficient. We’ll have to see about the foreign investors.”

Ellen Wald, energy markets consultant and author of the book Saudi, Inc., said American investor would still be undecided on the IPO. 

“Remember, investors don’t put money in because they think the value is accurate. Smart investors put money in because they think the value will rise. It all depends on whether they see signs the price will rise during their time frame.”

American oil finance expert David Hodson, managing director of BluePearl Management, said: “This valuation seems to be more reasonable based on the fundamentals. Potential investors in Western markets will base their decision on cold hard facts like dividends and growth prospects. From what we now know, Aramco is offering them a compelling investment proposition to consider.”