Bullish Signs in Uranium

Published on Saturday Nov 6 2010

Note** Since Posting Uranium Spot Price has since risen to US$56.00 P/Lb

UxC Price Update: “The UxC spot price is up US$1.50/lb to US$53.50/lb for the week (from US$52.00/lb). The long-term price remains unchanged at US$62/lb. Nine deals were reported during the week totaling 1.2Mln’lbs U3O8. Year-to-date, spot market volume has totaled 41.6 million pounds (218 deals) compared to 43.7 million pounds (187 deals) in 2009 and 35.1 million pounds (172 deals) in 2008. (source: Ux Weekly – Nov. 1, 2010).”

UxC Market Review: “Spot transactions for the month of October have accelerated with a total of 41 transactions vs the monthly run-rate in 2010 of 20.7. We remain supportive that prices will resume an upward trajectory from current levels and uranium equities remain inexpensive relative to historical valuation ranges. Medium-term, we believe spot prices will converge on the current long-term price (currently US$62/lb) and eventually move even higher as under investment in uranium production and lack of new supply, combined with low demand volatility and strategic inventory build serves to provide a fundamental underpinning. (source: Ux Weekly – Nov. 1, 2010).

Bullish Signs for Uranium. “There has been a resurgence of bullish signs for the uranium market and price in past few weeks. Production grade issues at Energy Resources of Australia’s Ranger mine resulting in lower production; and political and security risks in Niger, possibly impacting the start of the AREVA’s Imouraren project have increased supply risk. For 2010, we expect to see a net decrease in uranium production outside of Kazakhstan, signaling a tightening in supply relative to our previous forecasts. There is continued dependence on Kazakhstan for production expansion, but as a reminder, we estimate uranium prices need to be US$60+/lb for economic viability of some expansions.”

Further bullish signs for uranium include 

1/ U.S. dollar weakness vs uranium producer currencies (Australian Dollar, Canadian Dollar)

2/ Increasing long-term prices, which incentivizes utilities into mid-term deals where deal terms are more flexible; and 

3/ we are approaching the end of the HEU deal.”

Areva to sign uranium deal with China. “According to Les Echos, a French financial newspaper, AREVA may sign a US$3Bln deal this week with China Guangdong Nuclear Power Corp (CGNPC) to supply 20,000 tonnes of uranium over 10 years. Further discussions are also expected between AREVA, CGNPC and China National Nuclear Corporation  on delivery of two additional EPR nuclear reactors into China. China currently has 13 nuclear reactors in operation (11GWe), with a target of 40 gigawatts by 2020. There are 25 reactors under construction in China (21 French reactors).

Pricing update and market outlook provided by Ux Consulting Co. LLC

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