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Uranium Average Spot Price May Surge This Year, Goldman Says

http://www.bloomberg.com/apps/news?pid=20602099&sid=auYL_KBwsnpI&refer=energy

By Angela Macdonald-Smith

March 15 (Bloomberg) -- Uranium's average spot price may almost double this year to $90 a pound and may rise further in 2008, Goldman Sachs JBWere Pty. said.

The average spot price may peak at $95 a pound in 2008, while remaining at $80 or above at least through 2011, as secondary supplies of the nuclear fuel decline and demand growth accelerates, the Melbourne-based firm said in a March 13 report. The price forecasts are ``significantly'' higher than an earlier estimate, it said, without citing the previous forecast.

Uranium spot prices averaged about $48 a pound last year and have more than doubled in the past 12 months amid rising demand from utilities for fuel for power generation and falling supplies from reprocessed spent nuclear fuel from nuclear weapons. Output from uranium mines rose by 3 percent in 2005 and may have fallen about 4 percent last year, Goldman said.

``The market looks set to remain tight and prices are unlikely to fall significantly until there is consistent evidence that new mine production is sufficient to meet additional reactor requirements,'' Goldman analysts led by Malcolm Southwood said in the report.

Cameco Corp. and Rio Tinto Group are the world's two biggest uranium suppliers.

Uranium production from mines will probably increase after high prices stimulated investments in new mines, particularly in Kazakhstan, Goldman said. Mine output may rise by an average of 9.5 percent a year through 2011, when it may total 63,066 metric tons, the broker said.

``However, we also believe that this impressive run-up in mine production will be offset by declining availability of secondary material,'' it said.

Spot, Contract

About 15 percent of the western world's uranium requirements are supplied from the spot market, with the rest sold under long- term multiyear contracts, Goldman Sachs JBWere said.

The stronger outlook for uranium prices means mining companies are increasingly able to negotiate contracts with price floors and no caps, allowing them to benefit more from higher prices, the broker said.

``Clearly if this trend persists, realized prices could be significantly higher than our base-base forecasts imply, with new entrants, who are unencumbered by legacy contracts, the main beneficiaries,'' it said.

Goldman's ``high-case'' price forecast is for an average of $110 a pound in 2007, rising to $130 in 2008 and remaining at $100 until 2015.

Spot prices are currently at $90 a pound, Summit Resources Ltd., an Australian uranium explorer, said yesterday.