By Scott DiSavino and David Sheppard
NEW YORK/LONDON Nov 22 U.S. bank Goldman Sachs
Group Inc has put its uranium trading business up for
sale, a source familiar with the matter said on Friday, the
latest sign that Wall Street's most storied commodity trader is
paring back parts of the business.
The move comes as other U.S. banks, including JPMorgan Chase
& Co and Morgan Stanley, look to exit physical
commodity trading in the wake of increased government scrutiny,
squeezed trading margins and forecasts for tepid demand in
Goldman Sachs executives have been resolute that their J.
Aron commodity unit is a "core" part of the bank's offering to
clients. However, political and regulatory pressure has mounted,
and this week a source said the bank is considering selling its
controversial metals warehouse arm.
Goldman's two-person uranium desk, which it inherited with
the purchase of U.S. utility Constellation Energy's London-based
trading operation in 2009, is among just a half-dozen major
traders in the niche physical market for uranium, according to
an industry source at a rival firm.
The bank's presence has diminished in recent months,
although it remains active on a daily basis, the source said.
Other traders include Japanese trading companies Marubeni
Corp and Itochu Corp, Canadian uranium miner
Cameco Corp's Nukem unit, Deutsche Bank AG,
and the North American unit of privately held, Luxembourg-based
metals and mining trading firm Traxys.
The source said it would likely be difficult for Goldman to
sell the business to any firm other than another bank, likely a
foreign one, due to the dependence on ultra-low interest rates
to back long-term contracts and stockpiles.
Goldman's decision was first reported by online industry
The move to sell also comes as uranium prices languish at
their lowest since 2005. Spot prices of U3O8 (triuranium
octoxide), a material that is converted to uranium hexafluoride
for the purpose of uranium enrichment , have traded
at $34-$35 a pound since September, less than half the price
prior to the Fukushima disaster in Japan in 2011.
The Federal Reserve has prohibited most banks from trading
physical commodities other than those that are also traded on
regulated U.S. futures exchanges. Almost all uranium is traded
on an over-the-counter physical basis, but there is a lightly
traded futures contract on the New York Mercantile Exchange.
The Fed is in the final stages of a sweeping review of the
regulations governing how banks can operate in physical
commodity markets, with signs of a tough crack-down that has
already prompted some banks to get out of the business.
BUY AND HOLD
Trading firms like Goldman buy and hold uranium stockpiles
in warehouses specially licensed to hold the fuel, like U.S.
conglomerate Honeywell International Inc's ConverDyn
facility in Metropolis, Illinois; Cameco's Port Hope facility in
Ontario; and French mining and energy firm Areva SA's
facility in France, the industry source said.
About 80 percent of global uranium supplies are traded via
long-term contracts between producers and utilities, but around
20 percent of deals are done in the spot market, which sets the
marginal price, according to the World Nuclear Association.
Financial firms started to get into the uranium business in
the mid 2000s when uranium prices were rising on expectations
demand for the fuel would grow with the nuclear renaissance.
The price of uranium surged last decade to peak at nearly $140
per pound in 2007.
That renaissance projected power companies around the world
would have to build more nuclear reactors to meet strict rules
limiting greenhouse emissions and falling fossil fuel supplies.
But it never met its promise in the United States due to a surge
in cheap shale gas and a lack of federal rules limiting carbon
"Prices are expected to rise when the demand for the uranium
increases over the next several years as Japanese reactors begin
to return to service and work off their inventories and
world-wide nuclear power growth continues, particularly as new
nuclear plants in China, India, Russia and elsewhere enter
service," said Eileen Supko of nuclear fuel cycle advisor Energy
Resources International of Washington, DC.
Even though power companies are building five new reactors
in the U.S. Southeast, analysts have said that unless something
changes - new regulations limiting carbon emissions or a spike
in natural gas prices - the amount of generation from nuclear
power will continue to decline, limiting demand for uranium.
But the nuclear renaissance is alive and well in the rest of
the world, with more than 70 reactors under construction, mostly
in China, Russia and India, which will require tons of uranium
fuel to operate, according to data from the World Nuclear
Association, an industry trade group.