Uranium: CNUC's Pitch for an Alashankou Trading Hub

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China National Nuclear Corp.'s (CNNC's) goal of establishing a new uranium trading hub at Alashankou, near the Kazakh border in the far western Chinese province of Xinjiang, attracted immediate interest from uranium producers and traders this week. While some questioned whether such a hub will truly challenge the commercial pre-eminence of trading hubs in Canada, France and the US, an Alashankou storage facility will enable the Kazakh-Chinese supply axis that has become so central to the global uranium market over the past 15 years to operate more smoothly. It could also potentially provide greater market liquidity -- if Chinese utilities ramp up spot purchasing to attract market players to Alashankou -- and connect more suppliers to Chinese end-users. "Our target is to turn this warehouse into the next global uranium trading hub," Simon Sun, a director at CNNC subsidiary China National Uranium Co. (CNUC) told the virtual World Nuclear Fuel Market conference this week. By 2023 "we will be able to open an account for all industry participants in the world," said Sun, who addressed the conference on Jun. 8 from Beijing. "By using this warehouse, there is a chance to launch a new index and to quote it in the procurement contract." This would reflect "the actual Alashankou physical delivery market." Over the past two decades Alashankou has been a key transit point connecting Kazakhstan, the world's largest uranium producer, with China, which will likely become the largest market for uranium within the next decade or two. While China's uranium import figures haven't been publicly released since 2018, in 2017 the 15,047 tU of Kazakh-origin uranium imported into China represented 82% of China's total yellowcake imports (NIW Feb.2'18). There's no reason to believe those numbers have shifted much in recent years. In 2020 some 43% of sales from Kazakh state-producer Kazatomprom went to customers in Asia, and that figure is likely much higher for the Kazakh pounds produced by Kazatomprom's joint-venture partners. Building Out Capacity The thinking behind the CNUC plans is that market players could ship uranium from Kazakhstan for storage at Alashankou without paying the 13% value-added tax (VAT) that China imposes on uranium imports. That VAT would still be paid if and when the material was sold on -- and shipped -- to one of China's four nuclear operators. But if the producer wanted for whatever reason to take the material back across the Kazakh border, the VAT would never be levied. In theory this would also be true if a firm wanted to ship that material out of Shanghai, although such an endeavor would require use of CNUC's domestic transport logistics. CNUC, which manages all natural uranium procurement for its parent company, hopes to commission a warehouse at Alashonkou with an initial 3,000 tU of storage capacity by year's end in the Alashankou Comprehensive Bonded zone that's been in place since 2018. By 2023 CNUC hopes to expand its uranium storage capacity there to 13,000 tU, and then by 2026 expand it again to 23,000 tU. The warehouses would have the facilities to test uranium assays, and as full capacity is reached CNUC hopes that with some transparency an Alashankou price index might be developed. In the near term much of the Alashankou capacity would be filled with inventories owned by CNNC, and, CNUC hopes, by China's three other nuclear operators: China General Nuclear, State Nuclear Power Technology Co., and the China Huaneng Group. But CNUC's Sun also hopes to attract all the producers in Kazakhstan, and to woo any market players who want a foothold in China. "In order to attract the foreign producers and traders to store uranium and trade uranium in this warehouse," said Sun, "China's nuclear utilities would consider to allocate some portion of their demand to buy from this warehouse and then to import." If Beijing truly wants to attract traders and other market players to Alashankou, pointed out one market source, China's four nuclear operators may have to lessen their dependence on long-term contracts. "They will have to create demand," said the source: "Chinese utilities will have to be in the spot market" for an Alashankou hub to make sense. A Mixed Reception Market players immediately praised the idea of formal storage facilities at Alashankou. "For the primary producers already delivering there, this makes life much easier for them," said one trader. "The [current] process of getting material [out of Kazakhstan and] into China is really orchestrated, and heavily choreographed." But will Alashankou truly emerge as a trading hub? If traders eventually have the ability to "swap the stuff at Alashankou" for material held in accounts at Cameco's Port Hope, ConverDyn's Metropolis or Orano's Comurhex II, pointed out one supplier, "that gives more credibility" to Alashankou as a trading hub. But this might be a heavy lift for CNUC. "I think people don't trust them enough to park their material in China," he continued. Added a trader: "How sure are you that a Chinese government decision doesn’t come in and nationalize the facility? Then you'd be stuck without your material." Such a scenario seems unlikely in post-Deng Xiaoping China. But it does demonstrate the increasingly frayed relationship between the nuclear industry in China and that in the West, home to much of the activity on the uranium market. "I think the big problem now is that I see a lot of mistrust toward the Chinese in the nuclear industry," said the supplier. Phil Chaffee, London

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