LONDON (Reuters) - Deutsche Bank AG DBKGn.DE is holding preliminary talks with potential buyers of its uranium trading business - the first sign since announcing it was largely exiting commodities trading that parts of the operation are now on the block.

A man walks past Deutsche Bank offices in London December 5, 2013. REUTERS/Luke MacGregor

The bank’s uranium desk is one of the biggest third-party traders in the market, and holds substantial stockpiles of low-grade uranium, known as yellowcake, and numerous long-term deals with nuclear power plants.

The bank has had a number of expressions of interest in its uranium business, and expects to start a formal sales process early in the first quarter, sources familiar with the discussions said.

Deutsche Bank announced it was shuttering its global commodities trading business on December 5, cutting 200 jobs in the face of toughening regulations and lower profits. The majority of commodity traders have already left the bank.

The bank is retaining a core team known as the Special Commodities Group to wind down its operations, and will retain a number of purely financial commodities traders. The bank will also retain its precious metals business.

A Deutsche Bank spokesman declined to comment on the discussions surrounding the uranium business.

Goldman Sachs, the other major bank active in uranium trading, is also selling its nuclear fuel arm, but has said it remains committed to its J.Aron commodities franchise where many of its most senior executives started their careers.

URANIUM SALE

The sale will include Deutsche’s uranium trading book and stockpiles of yellowcake - known as U308 in the industry - worth about $200 million. At current prices that amounts to approximately 5.7 million lbs of the low-grade fuel.

That would be enough to fuel around 10 nuclear reactors producing 1000 megawatts each for between 12 and 18 months, industry sources said.

The banks uranium traders are not part of the initial discussions, but may go with the desk as part of any deal.

Deutsche is one of the biggest suppliers of longer-term deals to nuclear power plants in the market, and is also an active player in the spot market. All long-term deals would be honored as part of any sale.

Trading firms like Deutsche and Goldman buy and hold uranium stockpiles in warehouses specially licensed to hold the fuel, like U.S. conglomerate Honeywell International Inc's HON.N ConverDyn facility in Metropolis, Illinois; Cameco's CCO.TO Port Hope facility in Ontario; and French mining and energy firm Areva SA's AREVA.PA facility in France.

About 80 percent of global uranium supplies are traded via long-term contracts between producers and utilities, but around 20 percent of deals are done in the spot market, which sets the marginal price, according to the World Nuclear Association.

The sale comes as uranium prices languish at their lowest since 2005.

Spot prices of U3O8, 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.

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 during a so-called nuclear renaissance. The price of uranium surged last decade to peak at nearly $140 per pound in 2007.

That renaissance projected power companies around the world would have to build more nuclear reactors to meet strict rules limiting greenhouse emissions and falling fossil fuel supplies.

But a surge in cheap shale gas production in the United States, a lack of federal rules limiting carbon emissions, and the wide-ranging impact of the Fukushima disaster on the nuclear industry has hammered prices since 2011.

Nevertheless, the Deutsche Bank trading desk has been profitable in each of the last five years, sources say.