FYI | Jul 25 2007
Is the uranium spot price heading for US$160/lb or is a fall towards US$60/lb more likely?
If you’d asked most market participants this question two months ago the majority would have answered spot uranium will be writing US$160/lb in no time.
This time around it would seem market predictions have turned more cautious with a majority of experts likely to expect the price will probably weaken a little further, though unlikely as low as US$60/lb.
That’s how much the uranium market has changed in July.
Three weeks of consecutive price declines saw spot uranium as defined by industry consultant UX Consulting this week record its largest price fall in absolute numbers… ever!
“The largest price fall ever” sounds scarier than it is. Remember that it was only five years ago that uranium contracts contained product prices below this week’s price fall. And the spot price has had a tremendous run for 47 successive months which took it whole the way up to US$138/lb last month (or US$136 depending on which consultant you believe).
Ux Consulting, which decided to pull back its weekly spot price indicator by US$10/lb to US$120/lb this week, rightly notes that the sector is still facing the same dim supply outlook over the next few years while global demand is still expected to grow firmly.
Major producers such as Cameco and Energy Resources of Australia (ERA) continue to struggle with their production levels and ramp up plans elsewhere don’t go faster than they do.
Therefore, and this is 100% myself reading in between the lines of Ux Consulting’s weekly assessment of the uranium market: the answer to the question above is likely that spot uranium will first trend back towards US$60/lb and move upwards to US$160/lb again later.
As always it’s the exact timing that is the tricky part.
So what has happened over the past three weeks? I think the reversal in the uranium market is probably best described as the “revenge of the buyers”. Having endured almost five years of sheer relentless market power by suppliers the main buyers in the market have managed to stock their inventories in a sufficient manner so they no longer have to buy in the short term.
It surely must be a good feeling for them to see the roles reversed and to see sellers sweating over their uranium and constantly being forced to lower offer prices, again and again and again.
It’s the same game between sellers and buyers we’ve seen over the past five years. With sellers in the driving seat prices of uranium skyrocketed to ever higher highs and in a true dizzying tempo. Now it’s the same game but with the buyers in power.
It’s probably a fair assumption that spot U3O8 (uranium concentrate or yellow cake) can easily fall towards the price level of the longer term price indicator which has remained at US$95/lb. Close followers of the industry will no doubt remember that both prices had been at similar levels until earlier this year when spot U3O8 took off and the longer term price indicator remained at US$95/lb. That same US$95/lb still stands today.
Under such a scenario it is not inconceivable we won’t see Paladin Resources (PDN) shares back above $10 anytime soon, or ERA shares back at $28. If it is true that it would be difficult to see both share prices underperform while spot uranium prices were on a constant climb to new highs, as Macquarie analysts argued earlier this year, the reverse is probably true now that spot uranium prices are falling.
One of the many market specialists who’ve surfaced on the internet over the past five years has been constantly calling spot uranium at US$295/lb over the past year or so. Some of you readers have been forwarding me his predictions and asked for comments.
While I know one can never say never, as life truly is full of surprises, but it would seem rather easy to make such predictions when uranium prices are doubling every year. I think one can conclude from recent events that these days are likely to be over.
I suggest the expert in casu might like to have another look at his “calculations”.
I was actually planning to write a story on iron ore this week, but the latest uranium price developments could not be left untouched. Maybe next week? Who knows. At times like these it seems even dangerous to make predictions 24 hours into the future, let alone a whole week.
Till next week!
You’re the world is changing everyday, those who stand still will be left behind editor,
Rudi Filapek-Vandyck
(As always supported by the Fab Three: Greg, Terry and Chris)
