Spot Uranium Prices Continue To Rise

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By Rudi Filapek-Vandyck

Deutsche Bank analysts have been among the most bullish on price prospects for uranium since the crash from the US$138/136/lb price peak in 2007. As such, their price projections have found widespread attention, both by media and investors. Alas for those investors who took too much guidance from earlier price projections, spot U3O8 prices went their own way, in the opposite direction, hitting US$40/lb earlier this month.

On Deutsche Bank’s earlier projections we should be at US$100/lb, if not US$125/lb by now.

No doubt, were we to ask Deutsche Bank analysts what exactly went wrong last year they would respond with “Lehman Brothers”. Ever since the US investment bank went into receivership last year, its administrators have tried to monetise on the inventory of yellow cake that came with all other assets, but the result has been that a relatively small uranium market was dogged by the impatient overhang of some 500,000 pounds of yellow cake, seeking a willing buyer.

As it turned out, buyers proved too eager to get their hands on the “stuff” at too large a price discount and the Lehman inventory has now been officially taken off the market, indefinitely. Long story short: overall activity in the U3O8 spot market has picked up considerably since March, and prices are now rising again as well.

Last week, industry consultant Ux Consulting was the first to make a small increase to its weekly spot price benchmark. The small price rise marked the first upward move since November last year. Fellow-consultant TradeTech has since followed up with its own price increase. UxC has now followed suit with another increase; spot up US$1.50 to US$42.00 a pound.

It would seem spot uranium prices are back moving upwards and US$40/lb may have been the bottom for the foreseeable future.

Deutsche Bank analysts currently forecast an average price of US$70/lb this calendar year, implying prices should rise a lot further from here (Lehman Bros ambitions notwithstanding). The average price forecast for 2010 currently stands at US$80/lb.

According to FNArena calculations, spot uranium has thus far averaged around US$45.50/lb so far this calendar year.

Deutsche Bank analysts recently attended the World Nuclear Association (WNA) conference (in Sydney this time) and drawn further long term confidence from the fact that governments in Korea and China remain ambitious in terms of increasing power generation from nuclear reactors. They continue to highlight that Australia’s Paladin Energy ((PDN)) remains the only high growth uncontracted uranium producer without ownership by a government or a utility (though Areva does own a minority stake).

However, the future does not hold bullish prospects only for the sector. The analysts mention in this week’s brief update on the uranium sector that technological developments are now allowing effiency improvements at US utilities (meaning they can generate more power with the same nuclear capacity) and in addition the US Department of Energy (DOE) is expected to push the overall market into oversupply again from 2011 onwards.

On this basis, current price projections are for an average spot price of US$70/lb in 2011 and for US$65/lb in 2012 and a return to US$50/lb from 2013 onwards.

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