Goldman to sell uranium trading desk as Fed review looms

Reuters

By Scott DiSavino and David Sheppard

NEW YORK/LONDON, Nov 22 (Reuters) - U.S. bank Goldman SachsGroup Inc has put its uranium trading business up forsale, a source familiar with the matter said on Friday, thelatest sign that Wall Street's most storied commodity trader isparing back parts of the business.

The move comes as other U.S. banks, including JPMorgan Chase& Co and Morgan Stanley, look to exit physicalcommodity trading in the wake of increased government scrutiny,squeezed trading margins and forecasts for tepid demand incertain markets.

Goldman Sachs executives have been resolute that their J.Aron commodity unit is a "core" part of the bank's offering toclients. However, political and regulatory pressure has mounted,and this week a source said the bank is considering selling itscontroversial metals warehouse arm.

Goldman's two-person uranium desk, which it inherited withthe purchase of U.S. utility Constellation Energy's London-basedtrading operation in 2009, is among just a half-dozen majortraders in the niche physical market for uranium, according toan 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 MarubeniCorp and Itochu Corp, Canadian uranium minerCameco Corp's Nukem unit, Deutsche Bank AG,and the North American unit of privately held, Luxembourg-basedmetals and mining trading firm Traxys.

The source said it would likely be difficult for Goldman tosell the business to any firm other than another bank, likely aforeign one, due to the dependence on ultra-low interest ratesto back long-term contracts and stockpiles.

Goldman's decision was first reported by online industrypublication SparkSpread.

The move to sell also comes as uranium prices languish attheir lowest since 2005. Spot prices of U3O8 (triuraniumoctoxide), a material that is converted to uranium hexafluoridefor the purpose of uranium enrichment , have tradedat $34-$35 a pound since September, less than half the priceprior to the Fukushima disaster in Japan in 2011.

The Federal Reserve has prohibited most banks from tradingphysical commodities other than those that are also traded onregulated U.S. futures exchanges. Almost all uranium is tradedon an over-the-counter physical basis, but there is a lightlytraded futures contract on the New York Mercantile Exchange.

The Fed is in the final stages of a sweeping review of theregulations governing how banks can operate in physicalcommodity markets, with signs of a tough crack-down that hasalready prompted some banks to get out of the business.

BUY AND HOLD

Trading firms like Goldman buy and hold uranium stockpilesin warehouses specially licensed to hold the fuel, like U.S.conglomerate Honeywell International Inc's ConverDynfacility in Metropolis, Illinois; Cameco's Port Hope facility inOntario; 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 vialong-term contracts between producers and utilities, but around20 percent of deals are done in the spot market, which sets themarginal price, according to the World Nuclear Association.

Financial firms started to get into the uranium business inthe mid 2000s when uranium prices were rising on expectationsdemand for the fuel would grow with the nuclear renaissance.

The price of uranium surged last decade to peak at nearly $140per pound in 2007.

That renaissance projected power companies around the worldwould have to build more nuclear reactors to meet strict ruleslimiting greenhouse emissions and falling fossil fuel supplies.But it never met its promise in the United States due to a surgein cheap shale gas and a lack of federal rules limiting carbonemissions.

"Prices are expected to rise when the demand for the uraniumincreases over the next several years as Japanese reactors beginto return to service and work off their inventories andworld-wide nuclear power growth continues, particularly as newnuclear plants in China, India, Russia and elsewhere enterservice," said Eileen Supko of nuclear fuel cycle advisor EnergyResources International of Washington, DC.

Even though power companies are building five new reactorsin the U.S. Southeast, analysts have said that unless somethingchanges - new regulations limiting carbon emissions or a spikein natural gas prices - the amount of generation from nuclearpower will continue to decline, limiting demand for uranium.

But the nuclear renaissance is alive and well in the rest ofthe world, with more than 70 reactors under construction, mostlyin China, Russia and India, which will require tons of uraniumfuel to operate, according to data from the World NuclearAssociation, an industry trade group.

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