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Spot Uranium Remains Under Pressure

Commodities | Feb 16 2010

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

By Rudi Filapek-Vandyck

Investors and uranium market enthusiasts may want to pay attention as two stockbrokers in Australia used last week's somewhat disappointing results release by Paladin Energy ((PDN)) to reiterate their negative view both for uranium companies and for the short term outlook for spot U3O8 prices. GSJB Were and Deutsche Bank believe investors better not expect too much, in the shorter term.

A closer look into the matter has revealed that even stockbrokers with a more upbeat view don't expect too much firework from the sector in 2010. Both Macquarie and UBS forecast spot prices will average circa US$47/lb this year, down from an average of US$52/lb in 2009. In other words: uranium is not expected to join the recovery elsewhere in the commodity space anytime soon.

To make matters worse: both GSJBW and Deutsche suggest uranium stocks are on a relative basis too expensively priced when compared to sectors that have a much better growth outlook, like iron ore producers and developers.

Having said so, Macquarien does at this stage anticipate a return to US$80/lb-plus spot prices by 2012, but few of the stockbrokers would be willing to put such a forecast in their valuation models today.

As shown by industry consultant TradeTech's latest market update, overall activity in the sector has slowed down significantly, as market participants await more details on any additional selling by the US Department of Energy, the instalment of a new investment fund in Canada and more news about Cameco's ever-troubled Cigar Lake project. Back in 2006, it was the flooding of Cigar Lake that triggered the euphoria stage in the uranium bubble that burst in mid-2007.

As overall activity has come to a near halt, sellers are willing to lower their expectations and thus spot prices continue to battle downward pressure, reports TradeTech. Its weekly spot price indicator has now fallen another US25c to US$42/lb.

Nothing seems to ever happen in the term market. TradeTech's two other price indicators, for mid-term and longer-term, have both remained unchanged at US$50/lb and US$60/lb respectively.

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