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Uranium And A Long, Dry August

Commodities | Sep 04 2012

By Andrew Nelson

One thing is for certain, there was a lot more activity in the uranium spot market in August than there was in July. Prices may not have improved, but at least there was a run of optimistic talk, rumour and theory that percolated through the market, keeping investors and market watchers on their toes.

Over the course of August there were 17 transactions that took place in the spot market, with a total of 2.9m pounds of U3O8 equivalent changing hands. This is significantly more than the 1.4m pounds that were traded on the spot market in July.

Industry consultant TradeTech notes buyers were utilities and intermediaries for the most part, with the selling group being comprised of traders, producers and financial entities. The prominent featuring of traders and financial entities does little to inspire optimism amongst the bullish crowd, as it signifies that there remains a significant amount of speculative interest in the energy metal.

TradeTech believes the increased uranium market activity can be attributed to the pullback in the spot price that played out over July and August. The consultant notes that prices in deals reported during August declined as each successive deal was done. In fact, the pullback gathered momentum as the month neared its end.

Seller resolve finally began to crack under the strain of inactivity, with a number of marketers who were unwilling to drop offer prices finally buckling, seemingly determined to do some business even if it meant dropping prices. The lower the price went the more buying interest and thus an increase in volume traded for the month.

The positive side of their equation, if there is one, is that hopefully these “distressed” transactions are helping to clear the market of discount stock. Still, demand remains patchy at best and continues to be highly price sensitive.

TradeTech does see some improvement in these dynamics, but notes it will take time for a higher quality of demand to filter through. There are potential buyers that are yet to enter the spot market despite the recent weakness in prices. For utilities, it is a question of available budget to build inventory or make discretionary purchases, but management and budget allocations take time.

Until there is a pickup in steady demand, TradeTech notes there is increased talk in the market that prices could fall even further, seeing many prospective buyers delay purchases in hopes of getting an even better price.

For the month ending August 31, 2012, TradeTech’s Exchange Value was at US$48.00 per pound, down US$1.50 from the end of July and down US$0.75 from last week. Last week also saw broker Goldman Sachs trim its year-average uranium price forecast by US$1.00 to US$52.00 per pound for 2012.

There was a bit of new demand in the term uranium market last month, with news a US utility is now looking for over 1 million pounds U3O8 equivalent . TradeTech also expects that a non-US utility will also formally enter the market soon for “significant quantities”.

Until then, there remains a weakening trend to contend with. TradeTech’s Mid -Term U3O8 Price Indicator lost US $1.75 to $51.75 per pound over the course of the month, while the Long-Term Price Indicator to August 31 fell US$1.00 to US$60.00 per pound. The declines in both term indicators were booked towards the end of the month.

Increasing demand is expected in the mid-term market, but it has yet to materialize seeing prices in the mid-term market continue to weaken along with the spot uranium price. The long-term market is increasingly starting to see an increased willingness among sellers to drop offer prices in order to secure long-term commitments.

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