Uranium price will rebound: analysts (Part 2)

Nick Carter, vice-president at Roswell, Ga.-based uranium consultancy Ux Consulting says that the recent steep drop in the spot price was caused by the credit crisis, with hedge funds selling uranium inventory to meet redemptions. However, there are some funds still left with inventory.

He believes that spot prices are close to a bottom. One indication of this is that some uranium miners are buying on the spot market, either because they cannot meet scheduled deliveries, or because they feel that prices are bound to go north from here. Meanwhile, utilities, which have been buying material on the spot market, continue to do so.

Carter says that a number of new mines will need a price of US$50-70 to be economic. Since utilities are now stocked up on uranium, spot demand from utilities next year could be flat and largely discretionary. He does not anticipate spot prices going up much next year, but prices could go up over the next 2-3 years to the US$60’s to US$70’s range. He points out that prices for long-term supply contracts are US$70 per lb. uranium oxide, which is about US$25 above spot prices.

Carter is also keeping an eye on new reactor projects in the U.S. The Rockville, Md.-based Nuclear Regulatory Commission estimates a total of 23 applications for 34 new reactors for the years 2007-2010. However, Carter estimates that only 3 or 4 of these will be built by 2020, but higher oil and coal prices could be a catalyst for more new reactors. He is more sanguine on new reactor projects in China and India, but even there, plans for new reactors could be scaled back to some extent.

Carter estimates that commissioning of Cameco‘s (CCO-T, CCJ-N) Cigar Lake mine in Saskatchewan could be pushed back to 2013-2014, while production from BHP Billiton‘s (BHP-N, BLT-L) Olympic Dam mine in Australia could start ramping up gradually in 2016-2017. A number of smaller projects could be delayed if low spot prices persist, which could eventually push prices higher. Firmer prices could again attract more investment demand for uranium.