TradeTech published the weekly spot uranium price indicator of $61/pound, for the week ending November 10th in Friday’s edition of “Nuclear Market Review.” It is posted on the Trade Tech website. But, judging from the number of utilities seeking U3O8 equivalent, it is unlikely spot price increases will stall or stabilize at this level. Nor will the price likely increase by tiny increments between now and year end. By next weekend or the following, we could very well be looking at the ten-percent jump investors have been waiting for.
“It’s a bit of a poker game at the moment,” Sprott Asset Management Market Strategist Kevin Bambrough told StockInterview. “Utilities are scrounging around looking for contracts in size rather than entering a thin spot market.” Bambrough believes the spot market won’t supply utilities with the pounds they required, unless there is “a substantial rise in price.”
According to Gene Clark, utilities are circling suppliers and especially those holding uranium. “Eight utilities and three intermediaries are chasing over five million pounds of U3O8 equivalent this week,” Clark told us. “Sellers who needed to fulfill their year end cash needs appear satisfied.” In addition to this spot demand, over twenty utilities are now hoping to obtain more than 55 million pounds of U3O8 for long-term delivery beginning as early as next year, according to Trade Tech.
How much competition will utilities face from speculators? “The forces majeures may not have gone out yet, but those with Cameco’s Cigar Lake production contracts aren't likely to sit around and wait 3 months for the official notice,” Bambrough told us. “If they do, they’ll just get front-run by speculators.” What makes Bambrough conclude this? “I'm already hearing rumblings from many sources that another round of non-utility buying is entering the physical market now,” he responded.
Above the heads of current utility buyers looms the likelihood of new competition entering the marketplace for the first time. Last week, the International Energy Agency (IEA) recommended governments build more nuclear plants to slow climate change and increase energy. According to the Financial Times, this is the first time the IEA in its 32-year history has recommended nuclear power as a solution.
After releasing the IEA’s World Energy Outlook for 2006, the agency’s director told reporters, “On current trends we are on a course for an expensive and dirty energy system that will go from crisis to crisis which can cause more supply disruptions, meteorological disasters or both. That may mean skyrocketing prices and more frequent blackouts. This energy future is not only unsustainable, but it is doomed to failure.”
We asked Strathmore Minerals’ president David Miller about the current uranium supply picture. “As the price continues to move up, those companies that have the advanced uranium properties, and have begun permitting for production and can begin in less than 6 years, will be the companies which tie into the record high uranium prices we will see over the next 24-36 months,” he said. What about the juniors exploring now? “Uranium exploration projects, are 15, 20, 25 years away from production, even if they successfully find an orebody,” he responded. Miller believes the spot uranium price will go a lot higher than $61/pound before the price settles into a stable range.
One very near-term new uranium producer has recently been in the headlines. FNArena.com’s editor Rudi Filapek-Vandyck emailed us his thoughts from Australia, “Paladin is believed to be able to forward sell its product at US$10 premium to the spot price. It is believed the company has currently committed (forward sold) less than half of its anticipated production for next year.”
He added, “Paladin will therefore be a major beneficiary of the current developments. Also note the rumours: Paladin is not planning to commit any more to forward sales at this stage. This probably signals the same as Cameco's presentation: uranium price is likely to rise further.” He concluded this looked like a ‘bullish outlook’ for the uranium price through the end of 2006.
Concerns over energy security have become a global worry. At next weekend’s G-20 summit in Australia, this will be the primary theme for the conference. Central bankers and finance ministers from the world’s top economies will meet in Melbourne to discuss the energy supply and demand imbalance. “How does the world satisfy those economies that there will be continuity of supply at realistic prices, with no need to lock up supplies, without cartel activity which would rig those international markets?" Australian Treasurer Peter Costello told Australian television on Sunday. “If we can get an agreement on adequate supply, adequate security, proper international pricing, then I think we can actually ensure that what could otherwise become jostling and instability over resources over the next couple of decades will be taken out of the system.”
Australia holds the world’s largest uranium reserves.
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