Uranium: It’s A Bull Market

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This story features ENERGY RESOURCES OF AUSTRALIA LIMITED.
For more info SHARE ANALYSIS: ERA

By Rudi Filapek-Vandyck

Things can move fast in a bull market. On Friday, industry consultant TradeTech lifted its weekly spot price indicator by more than 4% on the previous week's price setting to US$72/lb (up US$3/lb). On Monday, the consultant added another US25c as the month of January had come to an end. To illustrate the current booming environment for producers of yellow cake, TradeTech has now also increased its Mid-Term price benchmark to US$75/lb while its Longer-Term price benchmark has lifted to US$70/lb. On Friday, the latter two stood at US$64/lb and US$67/lb respectively.

Spot uranium has gained more than US$10 in January compared with the consultant's spot price benchmark of US$62/lb at the end of December. But what makes the rally in uranium prices really impressive is the fact that today's price setting is no less than US$30 higher than the spot price a year ago. That's an increase of 71%!

On TradeTech's observation, market participants proved extremely busy in January with the consultant recording 27 transactions totaling circa 4.6 million pounds U3O8 equivalent. A renewed nuclear focus in China, assisted by production shortfalls from leading producers can easily be held responsible for the current booming environment. Apart from the much publicised interruption at Energy Resources of Australia's ((ERA)) Ranger Mine, North American producer Denison Mines announced this week it won't meet earlier production guidance  for 2011 either.

With a spot market that is tighter than usual, TradeTech reports term demand is expected to rise in the first half of 2011, "and suppliers have increased their offer prices accordingly". This is why the decision was made to increase the Mid-Term and Longer-Term price benchmarks.

One interesting observation made is that TradeTech is only aware of four periods when spot prices were trading above longer-term prices. First time it happened was in September 2003, then it happened again in March-April 2004, and then again for an extended time in 2006 and 2007. The fourth time is right now.

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