June 07, 2008 U3O8.biz Weekend Wrapup Publisher: U3O8.biz Author: Luke Brocki
The bull is back in the spot uranium market, as seen in stabilizing prices and optimistic research reports for the metal in the June quarter. And alongside an overdo upswing in the sector come more musings about the proverbial nuclear renaissance that has yet to materialize despite uranium's excellent fundamentals.
Price publisher Tradetech left its spot uranium price unchanged at $60 a pound U3O8 this week, amid reports of increasing buying interest through the month of May. According to Tradetech, spot market volume surged above 2 million pounds U3O8 equivalent last month, with 12 transactions reported.
It appears buyers are back, including producers, traders, investors, and utilities. Tradetech says prices in May's transactions varied slightly, but were mostly concluded at today's price. Many market participants feel the spot uranium price is now oversold, which would explain their return to the market.
Still, others remain bearish and wait for confirmation the metal's spot price has now stabilized. The less brave ones may have to wait for some time. After all, the spot market is hardly immune to fluctuations. Rival price publisher Ux Consulting dropped its price Monday by $1 to $59 a pound U3O8, but given the context of bullish fundamentals, that's unlikely to spawn another spot slide. Indeed, the long-term price for uranium is expected to hold at $90 a pound U3O8 at least through the end of June.
Futures for June are trading at $59 and look poised to heat up along with the summer. July contracts are worth $63 and August to December futures are worth $64. And next year is expected to be even more fruitful; June and December 2009 futures are trading at $74.
We're also nearing the end of another quarter, which means myriad industry reports from market watchers are again upon us. The latest, an equity research report on more than 500 global uranium companies, comes from Resource Capital Research (RCR), an equity research company focusing on small and mid size resource companies. According to the report, forward indicators show an expectation for an upward correction to the uranium price to around US$75 a pound U3O8, a 25 per cent jump from current price levels (click here to access the free summary report).
The report identifies uranium fund sentiment and activity as important factors in the outlook for the spot uranium price, given their combined holdings of around 20 million pounds U3O8 equivalent. The positive sentiment now back in the market is also fuelled in part by a strong increase in planned and proposed new nuclear power reactors worldwide. According to the RCR report, global reactors increased to 311 from 222 from January 2007 to May 2008, a 40 per cent jump.
Also according to the report, the positive one-month performance for many uranium companies reflects a bounce from an oversold position during last year's sub-prime crisis and renewed confidence in the uranium spot market. Indeed, the share price of many uranium juniors has moved up strongly from recent 12 month lows, in some cases rising more than 100 per cent, culminating in May's junior stock rally.
According to the weekly uranium update from Toll Cross Securities, that rally is done, with most companies dropping slightly compared to this time last week. As it stands, junior explorers dropped two per cent, advanced explorers fell five per cent, production visibility companies lost two per cent, and producers slid six per cent, as the Toll Cross Junior Uranium Index dropped 1.4 per cent to 356.05 from 361.24.
Just the same, the majors continue to thrive. In the past month Cameco is up 10 per cent, Denison Mines is up 21 per cent, Energy Resources of Australia is up 15 per cent, and Paladin is up 45 per cent. The only major in the red in the last month is Uranium One, down three per cent on news of continued production troubles.
According to a recent energy study by the Paris-based International Energy Agency, the world needs to build some 1,400 nuclear power plants as part of its goal to halve greenhouse gas emissions by 2050. This, after scientists found last year that emissions have to be cut by at least 50 per cent by 2050 to avoid a catastrophic increase in global temperatures. The report finds nuclear power could play an integral role in the energy revolution necessary to bring about the emissions reductions, alongside massive investment in the wind energy sector.
As if on cue, World Nuclear News reported this week that current economic uranium resources will last for more than 100 years at current consumption rates, making an anticipated nuclear renaissance possible in terms of resource availability. When coupled with new discoveries, reprocessing, and recycling, projections of reserves have uranium supplies lasting for thousands of years.
Around 5.5 million tonnes of uranium that could be economically mined (at today's spot prices) has been identified around the world. That figure is up 17 per cent compared to that from the last edition of Uranium 2007: Resources, Production and Demand---a report colloquially known as the Red Book and co-published every two years by the Organisation for Economic Co-operation and Development Nuclear Energy Agency and the International Atomic Energy Agency.
And, according to the report, there's plenty more where that came from, with expected uranium discoveries based on the geologic characteristics of known resources jumping 500,000 tonnes to 10.5 million tonnes.
The report sees nuclear power expanding from 372 GWe today to 509-663 GWe by 2030. Growth of such proportions would cause an increase in uranium demand from 66,500 tonnes per year to between 94,000 and 122,000 tonnes, and recent figures show currently identified resources are sufficient to meet the new demand. It's difficult to say how this data will affect uranium supply and demand curves in the short term, but it eases the minds of investors worried about the depletion of global uranium reserves.
That's not to say all interested parties have access to uranium. India, for one, is poised to run out of the metal unless international deals boost its reserves. Shortages of uranium are already impacting power generation in that country's six nuclear plants, which are now running at less than half of current capacity. India is looking to external sources for supply of uranium, most notably the United States, which is working on a bilateral agreement with India around nuclear cooperation, but is hindered by the latter's failure to sign the Nuclear Non-Proliferation Treaty signed by more than 40 countries nearly 40 years ago.
Iran has signed the treaty, but its efforts to develop a uranium enrichment program continue to ring global alarms. Iran asserts its enrichment program is part of a civilian nuclear energy program, while much of the west worries Iran is covertly developing nuclear weapons. The tense situation took a turn for the worse Friday, when an Israeli minister told a local newspaper an Israeli attack on Iranian nuclear sites looks unavoidable given the failure of sanctions to deny Iran access to technology with weapons-making potential.
While some analysts wonder whether Israel's threat is real, given Iran's military might, others worry any such attack could tarnish nuclear power's peaceful ambitions, as it tries to separate itself from past armed conflicts and enter the global energy arena as a major player. Judging by recent industry reports, the ingredients for a nuclear renaissance are within reach, but they also need to be combined just right. There's not much room for error in this recipe.
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