FYI | Aug 07 2012
By Andrew Nelson
According to reports in The Australian over the weekend, BHP Billiton ((BHP)) is rumored to have told consultants it will be delaying its decision on the U$30bn the Olympic Dam expansion for at least two years. The news followed on the heels of reports that Cameco will be putting its Kintyre project on hold given the poor production economics at current uranium prices.
With these two massive projects now on indefinite hold, one could expect there will be some sort of impact on the uranium market's supply-demand picture and subsequently on spot prices. One could thus not be blamed for coming to the conclusion that this summer could also mark a turning point for what are very undervalued uranium stocks.
Such views are supported by a recent report from the Organisation for Economic Cooperation and Development’s (OECD) nuclear energy agency and the International Atomic Energy Agency, which predicts global demand for uranium will steadily increase from about now to 2035.
The report points to global nuclear power capacity increases of between 44% and 99% from total net generating capacity at the end of 2010. According to the OECD, much of this growth will be spurred by demand in China, India, Korea and Russia where the most intense nuclear power expansion is expected.
The OECD report concludes the increasing demand for nuclear generating capacity will hinge upon the availability of sufficient uranium resources, which will become an increasingly important factor, especially as supply is currently decreasing, not increasing.
In a recent research report from JPMorgan, analysts said that growth in Chinese uranium imports should start having an upward impact in uranium prices as early as this year, with prices reaching US$85/lb within two years.
Meanwhile, analysts at Raymond James are also predicting U3O8 spot prices will rise towards the latter part of this year and will push as high as US$75/lb once supply begins to really tighten in 2014 to 2016.
But that is then and this is now. Currently, the uranium spot market is still slow and listless, with prices slipping by a few small coins every week or so. Last week on the spot market was not exception, with industry consultant TradeTech reporting just two sales totalling approximately 225,000 pounds.
Demand remained weak, and while a number of utilities are evaluating plans to enter the market to take advantage of the recent slide in spot prices, few have actually requested offers. Thus the uranium market remains at a standstill, with little in the way of activity or data to provide any sort of price guidance to buyers or sellers.
TradeTech’s Weekly U3O8 Spot Price Indicator finished last week at US $49.50 per pound, slipping another US$0.25 from the prior week’s value and unchanged from the July 31 Exchange Value. The story was the same in the term market, with no business conducted. There is still a fair bit of speculative demand, but it has been there for months and has little effect on prices. TradeTechs’ mid-term and long-term price indicators remained unchanged at US$53.50 and US$61.00 per pound respectively.
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