Signs Of Life In The Uranium Market

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By Andrew Nelson

Last week was slightly busier than what passes for normal these days on the uranium spot market. Deals were done, volumes were heavier and there were signs of new demand emanating from the broader market as buyers emerge to take advantage of currently depressed prices.

Local operator Paladin Energy ((PDN)) was a definite beneficiary of renewed interest in uranium supply last week. The company announced it would be handed $200m by a utility six years in advance of any delivery requirements and if delivery is eventually requested, the transaction will be done at the prevailing spot price.

The next bit of positive demand-side news came from the United Arab Emirates, with the country contracting for a 15-year supply of uranium and conversion/enrichment services from a Areva, Uranium One, Rio Tinto ((RIO)) , ConverDyn, Urenco and Tenex in a deal worth $3bn. The supply is to fuel the Barakah plant, UAE’s first nuclear power plant, which is scheduled to begin generation in 2017.

In addition to the stock that has been contracted, Emirates Nuclear Energy Corp also said it “expects to return to the market at various times to take advantage of favorable market conditions and to strengthen its security of supply position.”

In addition to the 4 reactors under construction in the UAE, neighbour Saudi Arabia has another 16 nuclear reactors planned over the next 20 years.

David Talbot of Dundee Securities notes that one doesn’t normally see utilities stock up so far ahead of time and he believes that these transactions are a signal that at least the two abovementioned buyers are worried about supplies.

“The more they are worried, the more quickly we expect them to react. This time we view these contracts as different…this might be the catalyst we have all been looking for,” he said.

If it is the catalyst Talbot has been waiting for: the news may well help to firm up spot prices in the near term. In fact, it may be possible that the impact is already being felt.

Industry consultant TradeTech reports that last week saw an upswing in activity, with 4 transactions reported and 950,000 pounds of U308 changing hands. Let’s hope this pick-up in volumes is an indication prices have dipped low enough and stayed there long enough to start attracting some steadier buying interest.

Another positive sign was that utilities were the buyers of the majority of the material that was sold last week. TradeTech notes that a number of other buyers are continuing to think about entering the market, although most of this speculative demand remains centred around delivery in late 2012, or early 2013.

That’s why it’s not time for uranium fans to pop the corks just yet. While it seems that lower prices are finally starting to generate some additional buying interest, TradeTech notes current demand remains extremely price sensitive, thus any increase in offer prices could see these potential head for the doors.

This has seen prices stabilize in what is a narrow band range, with sellers remaining concerned about both lowering and/or increasing prices significantly. Last week saw TradeTech’s Daily U3O8 Spot Price Indicator stay put at US49.00/lb.

Despite the deals done last week in the term market, TradeTech’s Mid-Term and Long-Term Price Indicators were yet again unchanged at US$53.00/lb and US$61.00/lb respectively.

 
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