Confusing Signals From U3O8 Market

Published on Aug 31, 2010

Opinions and views about the price prospects for uranium are as divided as those regarding immediate prospects for equities and government bonds across the globe; and that is probably putting it mildly.

In July spot uranium prices started rising again amidst widespread speculation Chinese buyers were re-entering the market and many commentators were predicting another wave up had started for the commodity. But as soon as these messages started attracting more and more attention, with share prices rising across the industry, another group of experts started to raise their voice, predicting it was far too early still to talk about a new bull market for uranium.

As things stand right now, spot uranium (U3O8) has risen from below US$42/lb to US$46.50/lb in a few weeks only, with increased spot deals being concluded, but the past two weeks have subsequently seen a sharp reversal. On Friday, industry consultant TradeTech lowered its weekly spot price indicator by US$2.25 to US$44/lb, effectively halving all gains made since the July rally.

Commentary by TradeTech suggests the damage was predominantly done by one seller who was prepared to go all the way to attract sufficient buyers' interest, but this seems to defy the fact that last week saw five deals being concluded, good for a total volume of 1.2m pounds of U3O8 equivalent; and the spot price still sank US$2.25.

Note that eminent producer of yellow cake, Cameco, announced earlier this month it had decided to restrain all sales for the rest of the year. Such a move should act as support for the spot price.

TradeTech's commentary also suggests there's plenty of buyers' interest, just not at all price levels (in other words: buyers remain on the hunt for bargains, but go silent when prices move higher).

TradeTech did keep its mid-term price indicator unchanged at US$50/lb and its long-term benchmark at US$60/lb.

Note that apart from one smaller quantity being sold at a price below the consultant's latest price update, TradeTech reports one large deal was done at the new price setting, while three deals carried a price label above the new weekly spot price. This might suggest further price declines are to remain rather limited.

Fellow-consultant Ux Consulting has thus far only lowered its own weekly spot price indicator to US$46.00/lb, but we haven't seen the latest market update just yet.

Rudi Filapek-Vandyck