Commodities | Feb 19 2007
By Rudi Filapek-Vandyck
The U3O8 spot price has thus far only moved once this year –up US$3 to US$75/lb three weeks ago- but this is expected to change as early as this week with both industry insiders as well as investors anticipating a potential big leap forward amidst continuous supply uncertainty for the sector.
For producers of uranium concentrate, or yellow cake, these are buoyant times with some companies indicating negotiating sales contract with a guaranteed bottom price of today’s spot price is nothing less but a given. For the utilities at the other end of the ledger, however, the prospects look highly uncertain.
The majority of producers have started to offer their product under so-called ‘market-related pricing terms’ which means the buyer agrees to pay the spot price at the time of delivery, probably a few months into the future.
Given the uncertainty regarding Cameco’s flooded Cigar Lake project, and a very tight uranium market, the spot price for uranium is bound to run up further between the signing of the contract and the delivery. No wonder some US utilities feel they are being forced to agree to contracts with a blindfold on.
So far, this situation has brought little action and thus a spot price that has remained largely unchanged, except for one jump.
A potential catalyst could come from the auction of 100,000 pounds of U3O8 on Tuesday (US time) with market experts suggesting the “winner” would likely have to bid US$80/lb – if not more.
Analysts at UBS suggested this morning uranium stocks were likely to receive another boost from a spiking spot price this month with the broker expecting further increases over the month with a large auction due by the end of February.
Looking at the way share prices of the likes of Paladin Resources (PDN) and Energy Resources of Australia (ERA) opened this morning, it would seem investors have already started to price in higher spot prices.
At 1.18pm Paladin shares were trading 40 cents, 4.04%, higher at $10.30 while ERA shares were $1.18, 4.79%, higher at $25.83.
