NEW YORK/LONDON: US 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 US 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 certain markets.
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 US 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 publication SparkSpread.
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 US 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 US 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 per cent of global uranium supplies are traded via long-term contracts between producers and utilities, but around 20 per cent 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.