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Wednesday, January 30, 2008

uranium spot price drops

It appears that the spot price of uranium is now down to $78. This has been driving down the prices of uranium stocks even more. What's more, there's substantial amounts of uranium going onto the spot market at these prices and it doesn't appear to be driven by speculators/hedge funds.


According to trade reports, physical offers have been put up for February and March 2008 in all three holding areas - the US, Europe and Canada - with prices below $80/lb in two of the areas. According to market players, one of the sellers has entered the market with "hundreds of tons" of material (each 100 tons equates to more than 220,000 pounds of uranium oxide).

It is said that there are no speculative funds or hedge funds on the Tullet Prebon screen at this time. According to one dealer, "it looks like the spot price may test the $75/lb level again before potentially rebounding toward the end of this quarter".
This article notes that Australia and Kazakhstan have increased production and will continue to increase production (no surprise there).


Last week, the supply for immediate delivery was 2.1 million pounds while demand was 500,000 pounds, according to TradeTech LLC.

Speculation that Russia will this week sign an agreement to start uranium shipments to the U.S. from 2011 pushed further the prices down.
This is interesting as Russia had said it wouldn't continue the long term deal they had. No doubt this new agreement would have much better terms for Russia.

So by my calculations Australia mined an additional 3 million pounds more of uranium in 2007. Kazakhstan plans to produce an additional 6 million pounds in 2008.

U3O8.biz has a commentary about the spot price drop.


Tradetech reported just one transaction, blaming political uncertainty and global market fears. The indicator points to this week's announced delay in the signing of a proposed amendment to the Russian Suspension Agreement as a harbinger of supply troubles, but the hold-up has yet to boost demand, which remains discretionary.
So the [proposed amendment to the] Russian agreement is actually delayed?




CONCLUSION

My take on all this is that none of this stuff affects the overall supply/demand picture. If you look at the world's uranium production table, 2006 was down from 2005 by 6 million pounds. It's not surprising if 2007 was up.

So Australia boosted production to 10,145 metric tons (22.4 million pounds) during 2007? 2005 production in Australia was 24.7 million pounds. They still haven't gotten back to where they were. But the most important long-term issue is still the huge gap between production and consumption even when you look at the estimated 2007 production on the chart.

The production increases these articles are talking about are needed just to keep up with the increases in demand (not only are there are lot of reactors planned and being built, but reactors in the US for instance have quietly been increasing their output without building new reactors). A whole lot more production is needed to close the gap between supply and demand.

I continue to own Strathmore Minerals and Fission Energy and I see them doing all the right things.

UPDATE Sat Feb 2, 2008:
Paladin's quarterly update press release has some interesting industry items in it.
2007 was a significant year for the world nuclear power industry. Four new reactors were connected to grids in India, China, Romania and the United States of America. Construction commenced on a further 10 power-generation plants, bringing the number of reactors under construction to 34. In addition, another 93 units are on order or planned and a further 222 new units are proposed - 64 more than at the end of 2006.
and
Both India and China have announced ambitious plans for new nuclear power capacity, however their predicted massive energy consumption growth suggests these initial plans mark only the beginning of a major conversion to nuclear power over the next 50 years.
which has been pretty clear for a while.

None of this is new, it's just good to see it from another source. Every time a new reactor goes online it requires nearly a million pounds of U3O8 for the initial core. Obviously at least one of those reactors is not really new since no new reactors have been built in the US for decades. I think they mean Unit One of the Browns's Ferry reactors in Alabama that went back online in May/June 2007 after being offline since 1985 (see here). I would guess that they probably needed new uranium to start it back up, but I could be wrong about that.

This tidbit of info is an example of what the demand chart for uranium over the past few decades shows:
Unit One can generate 1,155 MW of electricity, and TVA plan an uprate to 1280 MWe for this and the other two reactors.
Utilities have been quietly increasing the power generation of nuclear reactors without actually building new reactors.

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