July 30, 2013

Uranium Nearing Terminal Velocity

Published on Tuesday July 30 2013 (AEST)  

The steady and significant retreat of the uranium price over the month of July gathered even more pace last week. Volumes were steady, with six transactions involving around 700,000 pounds of uranium being reported, but the spot uranium price still fell 5% over the five days. We are now looking at levels last seen in November 2005. 

This was just before that time everyone thought uranium would make for a great investment, pushing the price up to US$138 a pound by June 2007. The GFC interrupted, then we had the Fukushima incident in March 2011 and uranium has been moving steadily south ever since. It's just a matter of time until world energy consumption increases. 

The US Energy Information Administration forecasts an increase of 56% by 2040. At the same time, nuclear power generation is expected to double, but with few buyers desperate at the current moment, 2040 seems like a long time to wait. In the meantime, the uranium market seems caught in a vicious circle. The lower prices are pulling out more buyers, but these buyers are bargain hunters. Thus the lower the price, the more buyers. The more buyers, the more price pressure. The more price pressure, the lower the price goes. For months sellers have been holding firm, but the dam broke earlier this month and it seems sub $40 dollar prices are not only a reality, but now a sub $30 nightmare is being dreamed about. Industry consultant TradeTech thinks we could see some price support from come from producers, traders and/or financials, but they would have to step into the market and buy some significant quantities. 

There are no takers yet, with most of them now in a "have to sell" position. By last Friday, TradeTech's Weekly U3O8 Spot Price Indicator had fallen another US$2.00 to US$34.50 a pound. There are still signs of life in the term market, TradeTech reporting that four new utilities are looking for offers for delivery in the mid-term. Yet just like the spot market, the higher levels of activity are proving disastrous for prices. Mid-term uranium prices have dropped in conjunction with spot prices, which has a number of US and non-US utilities contemplating entry into the term market to take advantage of current prices. 

Last week TradeTech's Mid-Term U3O8 Price Indicator managed to hold firm at US$43.00 per pound, with the Long-Term Price Indicator unchanged at US$57.00 per pound



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