KazAtomProm outlines move to trading

KazAtomProm's newly created trading subsidiary TH Kazakatom will bring much needed liquidity to the uranium spot market, its chief commercial director Riaz Rizvi has told the World Nuclear Fuel Cycle (WNFC) conference in Toronto, Canada. Rizvi said that, as part of KazAtomProm's ongoing Transformation Program, it had established a trading office in Switzerland to buy and sell uranium on the spot market.

Rizvi, who joined Kazakhstan's state-owned uranium producer earlier this month, said the team in Switzerland will have been hired by the third quarter of this year, at which time it will become active on the spot market. Prior to his appointment at KazAtomProm, Rizvi worked in energy trading and marketing commodities at AEP, Constellation Energy, Nufcor and NuCap.

KazAtomProm's move into trading is a response to a lack of liquidity in the market, Rizvi said. "The problem is the fact that we are not buying and selling material. And by not buying and selling material, very small transactions have the ability to move the market significantly," he said, noting that only 200,000 lbs U3O8 were traded last week.

The company, which hired about 40 external consultants for its Transformation Program, found that for the sales and marketing business, "we need to become much more customer centric. Long gone are the days when we could just sell it and people would buy it", Rizvi said.

KazAtomProm, which produces around 30 million lbs U3O8 per year, can produce across almost the entire supply chain, yet it isn't using its position to help its customers when delays or other problems occur. In addition, Rizvi added: "Pricing flexibility is probably the one reason why we've been unsuccessful so far in really penetrating the European and US markets. Our pricing mechanism doesn't necessarily line up with the way that our customers want to buy."

He added: "If we want to be in the spot market we need to be able to act fast and we need to be able to enter into contracts without a lot of bureaucracy, and that's how we're setting up this company." By basing TH Kazakatom in Switzerland, it is closer to the US time zone, as well as to the European and US markets which KazAtomProm wants to reach.

On long-term contracting, Rizvi said: "It's really about being able to give the widest possible range of options to our customers in terms of the types of contracts that we sign with them." Traditionally, KazAtomProm has been a "very slow bureaucratic organisation", he said. "If we agree a contract it still takes us three or four weeks to finalise the documentation. That's as true for 100,000 lbs as it is for 5 million lbs, which is why we tend to focus on big deals." With the establishment of the new trading subsidiary, "Now we can do it in pretty much the same way as all other market participants do," he said.

In 2000, primary market participants - utilities and producers - accounted for 95% of the spot market, he noted. That share decreased to two-thirds by 2005 and one-third by 2011. The rest comes from the financial community, namely traders and financiers.

Ten years ago there was a "massive spread" between the long-term price and the spot price, which reflected security of supply. "In no other industry did we have anything like that," Rizvi said.

"In every other industry, if you wanted to contract long term, you were basically looking at the spot price and then adding on the cost of carrying, and the cost of storing, cost of financing, and that was really the price in the future. And what the financial players have done is they've made our markets more efficient.

"They've come in and they've said, this is the price in two years' time and this is the price today. And if they get out of whack, then what they'll do is they'll sell material in two years' time and they'll buy material on the spot market and by doing that over and over again, the futures market goes down and the spot market goes up and we're back into equilibrium. So actually they're making our markets more efficient," he said.

Last week, 200,000 lbs U3O8 were traded, he noted. "So, the real problem is not those other participants that get in the market; the problem is us, the problem is the fact that we are not buying and selling material. And by not buying and selling material, very small transactions have the ability to move the market significantly."

An answer to this problem is having standardised contracts, he said, and a lot of utilities are using them now. This allows market participants to transact very quickly in the market and buy and sell without a lot of paperwork and administration, he added.

"Today, it's a buyer's market and so producers have to compete with each other. There's not much that can be done to the product - labelling the drums won't make them move off the shelves faster. The problem for KazAtomProm was how to penetrate markets like Europe and the USA, where it has a very small market share.

"We have a portfolio of 30 million lbs per year. We have material in every single converter. We have the ability to produce across almost the entire supply chain. And we're not using that to fix other problems. Delays happen to deliveries, things go wrong, and very often in the market, financial players are helping to fix these problems. And for us it's an opportunity to basically know our customers better and to give them solutions using the vast resources that we have.

"Pricing flexibility is probably the one reason why we've been unsuccessful so far in really penetrating the European and US markets. Our pricing mechanism doesn't necessarily line up with the way that our customers want to buy."

KazAtomProm unveiled its "transformation" strategy in October 2015, saying it planned to follow the example of other major uranium mining companies and create a trading subsidiary. Umirzak Shukeyev, chairman of Kazakhstan's sovereign wealth fund, Samruk-Kazyna, said at the time that the key objectives of the strategy include "trebling the company's value" by 2025. Samruk-Kazyna, which is KazAtomProm's sole shareholder, was launched in 2008 to modernize Kazakhstan's economy and help attract foreign investors.

WNFC is an annual event organised by the World Nuclear Association and the Nuclear Energy Institute.

Researched and written
by World Nuclear News