LONDON, May 7 (Reuters) - CME Group (CME.O), plans to launch a physically based uranium futures contract in the coming months, a move that could attract more institutional money into the thinly traded and opaque market, three sources familiar with the plans told Reuters.
The contract marks a departure from CME’s existing, financially settled uranium futures, which have seen scant volumes, and comes as investor interest in nuclear fuel surges on expectations of new reactor builds to meet climate targets and power energy‑hungry data centres.
"This will be a huge step forward for the uranium market," said John Perdew, co-head of nuclear fuels at broker TP ICAP.
"There's a lot of eyes on uranium, a lot of new capital looking at it. There's a futures contract, but it only has 350 lots of open interest and four prices a month. That's not what they (investors) want."
The CME declined to confirm the move, but said: "We're always talking to our clients to understand their risk management needs."
Under the new contract, uranium will be stored with ConverDyn, one of the few facilities that is licensed to store the metal, Perdew said. The CME contract is based on U3O8 or yellowcake, which has relatively low radiation, but is tightly controlled since enriched uranium is highly radioactive and can be used in nuclear weapons.
LACK OF PRICE TRANSPARENCY
Funds and other investors are showing fresh enthusiasm for uranium due to the acceleration away from fossil fuels following price spikes triggered by wars in Ukraine and Iran, but many have been deterred by limited price transparency and the lack of exchange-traded instruments.
CME, the world's largest derivatives marketplace, prices its existing uranium contract weekly through consultancy UxC. The second contract would run alongside, an industry source said, declining to be identified ahead of an announcement.
The new contract will be priced based on buying and selling of the futures, just like other physically based metals such as copper.
The current LME uranium contract has not traded since February 19, LSEG data show.
Joe Kelly, CEO of broker Uranium Markets, based in Greenwich, Connecticut, expects the new contract to be introduced this quarter or next.
"Everyone knows everyone in uranium and we're actually okay trading amongst ourselves. We're able to get what we need done, but we're certainly looking at the new contract with an open set of eyes," he said.
TP ICAP, the world's largest inter-dealer broker, revived trading in uranium in March, partly due to a recent upsurge of queries from funds, Perdew said.
Rising interest in the sector lured Mercuria to become the first major commodity house to launch physical trading in uranium, Reuters reported in September.
Mercuria competes with Goldman Sachs (GS.N), and Macquarie (MQG.AX), which had long been the only banks operating in the market worth some $15 billion annually.
Demand for the fuel used to power nuclear reactors is expected to more than double by 2040, the World Nuclear Association said last September.
Reporting by Eric Onstad; Editing by Veronca Brown, Elaine Hardcastle
