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Sunday, May 06, 2007

uranium continues climbing to $120

StockInterview reports that the spot price of uranium increased again to $120 from the insanely high $113 which was a jump from $95 and so forth. This is TradeTech's spot price, not UxC's price (which comes out Tuesday), and UxC's price is the basis for the upcoming uranium futures market. TradeTech's price is not based on any actual sale of uranium, but their guess based on bids and asks. Presumably, the $120 price is somewhere in between.
As we have advised the growing number of media contacting StockInterview.com, the market is in a ‘wait and see’ phase ahead of NYMEX futures trading. Sellers are not eager to quickly sell out, and continue to stretch their speculation to the limit. The gulf between the weekly spot price and the long-term uranium price now stands at $35/pound. This was the long-term uranium price in November 2005; now the dollar amount is the spread between spot and long-term.
emphasis added.
I actually bought more Strathmore Minerals when the price dipped last week.

Apparently, some of the more enthusiastic commentators are taking that hypothetical $500 number and giving it more credibility than it should have, according to the author, Julie Ickes. My understanding of that $500 number (and I could be wrong) is that it's the highest number that the price could reach before it started causing nuclear power plants to stop buying uranium and presumably shut down or else switch to other costly methods of getting more reactor fuel. I view that number as an upper limit on the price, certainly not a "price target".

The article reports that sellers are discouraged from lowering prices to match the buyers' prices because there's another potential auction coming up in May (same people as last time).

The uranium futures market starts up in the coming week. Everyone's going to be watching it.

UPDATE Mon May 7, 2007:
TradeTech has a new article out about potential government sales of uranium.
The proposed sales strategy would sell ‘measured quantities’ of uranium in order to reduce inventory levels and inventory costs, as well as reduce the overhang these inventories may have in the market, according to Rutkowski. “We don’t plan to dump uranium,” Rutkowski told StockInterview. “We have a lot of inventory, but uranium miners are worried that DOE would affect the market. We want to be good neighbors with them.”

Rutkowski said that should the sale take place, selling a ‘very small’ amount of uranium is needed to generate revenues ‘to keep the DOE’s Portsmouth (Ohio) facility running through 2008.’
The chart in the article is very interesteing. The current excess inventory is around 133 million pounds. I figure they could hold down prices for about 5 years if they really tried, but that would be it. The slowdown of production during that time would only make the eventual uranium crunch even worse, since demand is clearly going up seriously. And that's how they got into this whole mess to start with.

TradeTech talks about the rumors that the Nuclear Energy Institute had lobbied to prevent speculators from buying government uranium, which would be pointless because speculators would simply buy everything else and the utilities would be battling each other out for the government uranium at high prices. No free lunch.
“I don’t believe the utility plan went anywhere,” Rutkowski told us. “We would probably get sued for discrimination,” if the government barred speculators from participating in those auctions.
In terms of the excess uranium:
“Not all of this is commercially available.” He explained there were bottlenecks in getting the Off-Spec Non-UF6 to market because ‘it needs further processing.’ He told us, “The majority is in forms other than UF6, and it could take years to get processed. Not many companies have the facilities necessary to process it.”
and then there this:
“There is an interest in the creation of a nuclear fuel reserves,” Rutkowski said. “The reserve would be to safeguard against supply disruptions, whether these are environmental or through force of nature.” Rutkowski compared this to the strategic U.S. petroleum reserves.
Rutkowski said that they don't want to get mixed up in the marketplace. Good idea. And he seems to think that TradeTech is "doing good work."

UPDATE later that day:
The report on the futures market shows contracts trading started at $132.05 and ended a session (the session times are very strange) at $140 per pound.

I wonder about the long term price. I've seen a recent bloglike post saying the $40 range. Given the imbalance and the nature of the industry as I understand it, I would think it will be a long time before supply saturates that much. There's a lot of exploration work that will never pan out. In a steady state, you'd expect the price to be slightly above the marginal cost of the highest producer (after lining up the producers starting from the lowest cost).

Cameco's announcement was interesting. A lot of things went wrong and the mine was risky.

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