Interview: CNNC's Simon Sun on Alashankou Uranium Hub

Last month saw the operational launch by China National Nuclear Corp. (CNNC) of its Alashankou bonded uranium warehouse near the Kazakh border in the far western Chinese province of Xinjiang. This marks the first step for the state-owned company toward establishing a global uranium trading hub. On Jan. 5, the first shipment from Kazatomprom was imported into the new warehouse. In an exclusive interview with Energy Intelligence, Simon Sun, a director at CNNC subsidiary China National Uranium Co. (CNUC), shared the rationale, operational details and longer-term visions for Alashankou.

Q: How is China’s uranium demand currently being met?

A: Every year China needs maybe 12,000 tons of uranium. We only produce part of it so for the rest of the supply we need to buy from major producers in the world. For example, we have an established, very stable relationship with Kazatomprom, with Cameco and with Orano. They treat us as one of the most important clients in the world, because China is developing nuclear very rapidly. Their production is mostly from Kazakhstan, so for those [companies] I mentioned, they own mines in Kazakhstan. They have production, so we just established the commercial relationship with them and then we import the product. Most of our supplies are imported from Kazakhstan.

Q: You mentioned China needs 12,000 tons of uranium per year. How much is from domestic production and how much is imported?

A: Sorry, I can't say — this is quite sensitive. But what I can tell you is the majority of the supply comes from abroad, with Kazakhstan being the main supplier. Basically China now imports uranium from Kazakhstan, from Uzbekistan and from Namibia. And from Namibia it is our own production.

We import the product from Kazakhstan through the border [at a place] named Alashankou in Xinjiang. In the past 20 years we have imported every pound of uranium from Kazakhstan through a transit point at Alashankou; Uzbekistan product also transits through Alashankou to China. Each year, around several thousand tons of uranium are imported through Alashankou.

Sometimes due to weather or other reasons, or for example, during China’s annual or high-level political sessions, there is an impact on transportation. That was the initial [motivation] for us wanting to build a warehouse at the border [to get around unplanned interruptions to transportation schedules]. We can temporarily put the material in the warehouse at the border, and wait for the weather conditions to get better or for the conferences to finish, and then we import the material from the warehouse into an inland converter.

After some brainstorming, we thought why not set up a uranium market at the warehouse?

Right now there are three markets for uranium trading in the world — one in France, one in the US and one in Canada. And all the uranium price indices are based on the deals done at these three converters. From the Chinese or Asian perspective, this is sort of unfair because we import a huge amount of material through physical delivery. But the price is determined by the smaller volumes traded in the West, which affects the big-volume physical deliveries in the Eastern world.

The global annual demand for uranium from nuclear utilities is around 60,000 tons to 65,000 tons. China consumes 12,000 tons. But we don't have too much influence on the price. That's not fair. In the future China is growing its nuclear power generation capacity, so our uranium demand is getting higher and our uranium demand as a proportion of global consumption is going to be higher too.

We’ve got to change the situation. We need to do something and one thing we can do is establish a market that is totally open to the world. Everybody can come to this market and open an account. And we would store some of our inventory in this warehouse, which is a bonded warehouse so payment of taxes can be delayed until the supply is needed.

Producers can store their unused or unsold material at this warehouse and we can provide them the best rates for storage.

Q: Can you say what the storage fees will be?

A: We don't have the exact figure yet, we are calculating that now. But we can provide very decent rates comparable to those of Western converters.

To be frank we are not using this warehouse as a money-making tool or for profit. We want to provide a [trading] platform for the world. What we want to do is attract companies to open an account with the warehouse and store and trade uranium.

As long as there is enough number of trades every day or every week, we can communicate to, say, Nuclear Intelligence Weekly or UxC or other publications for publishing an Alashankou price index. That would be a big breakthrough for the uranium market.

Q: When will you launch an Alashankou price index?

A: It really depends on how much interest there is. We don't have a very strict deadline. Let's say if only one deal or two deals get done every month, that would not lend support to the launch of an index. But we would provide the best conditions, best rates for everything to attract companies to Alashankou.

We might obtain support from big Chinese buyers by asking them to only buy uranium from the warehouse. In this way we would attract interest to store and trade uranium at Alashankou.

So back to your question of when we plan to launch a Chinese uranium price index, I suppose maybe sometime between 2025 to 2030. It will take time. This is not something you can achieve by rushing. We will do it slowly.

Q: How can you get support from other Chinese nuclear players to only import through Alashankou?

A: We're working on this. We’re talking to other nuclear companies to do this together. We’re having very close discussions with them because it's beneficial for them as well.

They may own some commercial inventory, so by storing their inventory temporarily in this warehouse, they can save on the interest from delaying payment on the 13% VAT.

Q: Will you need regulatory support from the central government?

A: That's our approach to attract global producers. So far there are no such regulations for how the warehouse should be run properly. But this is the direction we're working toward, because this is something good for China as well.

Q: Will other players want to have shareholdings in the warehouse in exchange for their support? 

A: Yes, that's discussable. We’ve been having a very intensive discussion with Kazatomprom, and they are very interested in this warehouse.

The first batch of material we imported into Alashankou comes from Kazatomprom, but the ownership is with us. We bought from them at the border, and we transported it into the warehouse.

Q: What is the volume of this deal?

A: A few hundred tons.

Q: What is the price?

A: I can't tell you the exact figure, but it’s market-related.

Q: How does the Alashankou trading hub operate?

A: Let's take the example for this first batch of supply. It belongs to CNNC. We bought it from Kazatomprom at the border between China and Kazakhstan and the title transferred to CNNC. The Alashankou warehouse is very close to the border so we transit by putting the material from the railway onto the truck to transport it to the warehouse.

At the warehouse, we have a team to sample and assay the material and make sure the quality meets standards. Then we store it inside and book it. In future, if another company wants to buy the material, we can book-transfer the ownership.

That’s the case for the material belonging to a Chinese company. But in the future, we must somehow attract Kazakh producers to store their own material in the warehouse. That is something on which we have a lot of work to do, because in China, there is now no precedent for foreign ownership of uranium stored within Chinese territory.

So we need to obtain government approval, but I don't see too much difficulty, because it’s totally commercial. We can build a market that's good for China opening up to the world. This is something we need to do and we are doing it right now.

The day will come when foreign players can store their uranium in Alashankou and start to trade with traders from all over the world. We want to see a very booming market.

Q: Will re-exports be allowed?

A: That's very good question. If you want to attract more players to this warehouse, you must allow them to re-export. But we need to get government approval again because there is as yet no precedent.

As long as the government agrees, the logistical aspects are not difficult at all because the warehouse is very close to the border with Kazakhstan and they can transfer material back very easily.

But I think there would be little need to transport the material out of China, unless they really need it. Kazakhstan has no nuclear power plant. It can be transported to India, but the biggest demand is from Chinese utilities.

In any case, we would provide a channel for transferring the material back [to Kazakhstan].

In the future, maybe we can arrange for some connection between this market and Western markets, meaning like a swap arrangement. With such a connection in the future, we're going to have four uranium physical delivery markets in the world — one in Asia, three in the Western world.

That will be good for everybody, with the uranium world connected by these four markets.

Q: When do you think you can achieve this goal?

A: In 2025 to 2030. These five years are going to be very important.

This year — 2023 — we completed the first phase of our warehouse with 3,000 tons of capacity. I flew to Xinjiang and was very happy to see the first batch of material moving in and out.

The second phase of 10,000 tons is under construction and hopefully will be completed by the end of this year, or latest at the beginning of next year.

And we will see if we can demonstrate that there's a lot of interest from Western companies for storing a lot of uranium during the Phase 1 and Phase 2 stages.

Then we would make a decision later on whether to build Phase 3, which would be 10,000 tons as well.

Right now we don't want to be too aggressive. If we build the total of 23,000 tons capacity in one go and then find that there's not too much uranium volume [coming in], that would be messy. So that's the reason for doing it phase by phase.

Q: Which Western trading companies have expressed an interest?

A: A lot, but I can't tell you their names. They've been sending me emails asking about the details of the warehouse and they want to open accounts.

One reason for the strong interest is that for Western traders, they don’t have access to physical delivery at the border, which is totally different from the book transfer delivery at Western converters.

Physical delivery has a threshold, it's very complicated. It requires export and import licenses and must meet a lot of requirements from the government. So for the past decades, very few of the traders have had access to physical delivery at the border.

Now with a warehouse, it’s good news for the traders. They can just simply open an account, buy the material from the producer to [sell to a] Chinese utility, and don't need to do anything in terms of [applying for] the licenses, getting government approval, or even [arranging] transportation.

They can book ownership right after the physical delivery, [which has already been] taken care of by the producer and the warehouse managing company.

But I'm still [in the process of ] getting permission from the government to allow Western trading companies to hold ownership [of material in the warehouse]. That’s something very important in China, but one thing we know is at least people are showing high interest.

Q: Could you say roughly how many Western companies have shown interest?

A: Five to ten.

Q: So right now Western companies cannot participate yet, it’s currently only for Chinese participants?

A: Yes. I'm talking to the other Chinese nuclear companies and hopefully they would [agree to] store their uranium in the warehouse this year. They need to sign a contract with the warehouse managing company — CNNC Xinjiang Supply Chain Company — which is our subsidiary for operating the warehouse.

Q: Is CNUC the owner of the warehouse? 

A: Phase 1 ownership is different from that for Phase 2 and 3. For Phase 1, the Alashankou government is involved in the construction and we lease the warehouse. Phase 2 and 3 belong to us; we undertake the entire construction after leasing the land.

Q: In the future, when you reach some agreement with the other Chinese nuclear companies on using the warehouse, do they intend to engage in spot trading?

A: Spot transactions account for a small volume of close to 40 tons, but China buys thousands of tons every year. So maybe they would buy a little spot volume from time to time when the price is very good. But their main supply source is still long-term contracts.

We can discuss with suppliers for [concluding] long-term contracts based on delivery through the warehouse. Previously, delivery was at the border but now we can say the delivery is in the warehouse. So that would help to promote the warehouse.

Q: How do you ensure the quality or purity of uranium passing through Alashankou?

A: I mentioned earlier that we have a team to sample and assay the material and ensure it meets specifications, otherwise we will decline it. All the material is in the form of U308. The quality depends on the producer.

Q: Do you have anything else to add?

A: We would one day maybe build a nuclear fuel conversion facility in the Alashankou region too. So perhaps in future material can first be transported into our Alashankou facility for storage and then be converted, followed by transportation to Shanghai port for export to Western markets. Maybe we can enrich in China and export the enriched UF6 to the Western world, which is a very ambitious vision.

Q: What is the time frame for that to happen?

A: I'm not sure, maybe in the next 10 years or so, but that is our vision.