Johannesburg - The price of uranium has disappointed investors this year with only the last few weeks offering hope of a recovery.
The good news, however, is that the recovery trend is set to continue until 2010, said US-based uranium research company. TradeTech.
By July 7, the uranium price had risen for two consecutive weeks and was at $60/lb. Gene Clarke CEO of TradeTech, which publishes a weekly uranium price, sees it up again next week.
"Right now, demand is ticking up a fair amount on the spot market driven by speculators," said Clarke. "The utilities are waiting and I think they will pile in when the price gets up, when they see it moving up three to four weeks in a row.
"It may be a signal this is as low as it is going to get for now and they may go in and buy", he said.
The uranium price spiked at $138/lb last June after rising throughout 2006. The buzz around uranium was audible and after the spike prices tumbled.
"Why it went so high is a bit of a mystery. The speculators were a bit new to the market and needed the price to go up to make money even although utility buying dropped off a couple of months before the peak. This sometimes happens in a market when new players get in; there are peaks and valleys," said Clark.
TradeTech's reference case for the uranium price sees the price recover this summer and fall (Northern Hemisphere), with the spot price rising back up to the mid $90/lb. "The price will bounce around and by the first quarter of 2010 should be in the region of the high $80s/lb up to the $90s/lb," said Clark.
Rio Tinto, which operates the Rossing uranium mine in Namibia, and investment Bank Goldman Sachs JBWere, have also said that they see the uranium price rebounding to $90/lb.
The buoyant uranium price has by many been attributed to the resurgence in popularity of nuclear power.
Bloomberg News reported this month that India, China, Canada, Japan and Russia will all start up nuclear reactors either this year or next. The South African government also plans to invest in two new nuclear plants.
Clark said the resurgence of nuclear power generation as an alternative source of power is much talked about. But in the longer term, he believes the uranium enrichment process will become more efficient such that they'll never be a supply deficit notwithstanding the growth in nuclear plants.
Why the bull market?
It's not clear if it was the renewed enthusiasm about nuclear power that sparked the jump in uranium prices. "Which came first the chicken or the egg?," said Clarke.
"In our opinion the uranium price was too low for too long and it could not support the development of new mining capacity."
According to TradeTech's model, which is based on an annual average out to 2020, the uranium price will be $75/lb. Clark said in his view the current price will hold for another year or so then it may drop off to around, or below, $50/lb.
"There are a whole slew of junior producers coming into the market and we anticipate the price dropping for new contracts as the new production works into the system," said Clark.
TradeTech sees uranium demand peaking at around 210 million pounds in 2016 from just above 180 million pounds in 2004. After 2016 TradeTech expects a dip in demand to just over 200 million pounds in 2020.
Clark does not rule out another spike in the uranium price. Scenarios such as hi-cups in the timing of the production build up at Cameco's Cigar Lake or at BHP Billiton's Olympic Dam (that is the spelling of Dam they use on the BHP website) could rapidly push the uranium price upwards.
"That would have the speculators salivating," said Clark.
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