article 3 months old

Is The Uranium Rally Finally About To Arrive?

Commodities | Nov 26 2009

By Rudi Filapek-Vandyck

Analysts at Canada based Salman Partners have been among the perma-bulls in the uranium industry for many years now. Until recently their expectation that spot prices for U3O8 (yellowcake concentrate) would not only revisit but beat the previous peak of US$136-138 per pound in 2011 must have raised a few eyebrows here and there throughout the industry.

Fact is, the longer those forecasts remained in print, the sillier they looked as market prices were actually moving further and further away from those predictions.

This week the analysts have finally bitten the bullet. Succumbing to everyday reality they have taken a knife and cut their forecasts, and by a wide margin. That is part one of this story. Part two is that they have grown in their confidence that uranium prices are about to unleash themselves from the present bearish context, and a new boom-rally should thus be soon upon us.

Let’s start with part one. Overall demand has turned out significantly less than previously forecast and to make matters worse (double whammy) global supply has surprised in a major manner as well. As a result, Salman Partners’ previous forecast of a new peak of spot U3O8 in 2011 in the order of US$150/lb no longer looks feasible. This much admit the analysts responsible for this previous forecast.

They now suggest somewhere in the vicinity of US$105-$110/lb is more likely. The good news: with spot uranium falling to US$43/lb last week, this still implies a lot of upside between now and then.

Secondly, say the analysts, spot uranium prices should be soaring right now, but all market participants can focus on is the intended selling program of the US Department of Energy (DoE). Suggest the analysts: let’s keep things in perspective here. The DOE might sell around 0.8 million pounds of uranium over the next few months. That is 0.8 million pounds in a 168 million pound-per-year business!

In summary, Salman analysts believe the market has over-reacted to the news from the DoE, and they have grown more confident of a new bull market in uranium over the next twelve months.

No guarantees included, of course.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms