uranium prices fail to match hype

Uranium prices fail to match hype

KATE EMERY, The West Australian April 14, 2010, 7:20 am Buzz up! Send


BLOOMBERG NEWS / DANIEL ACKER

Concerns that bullish predictions around uranium are not being matched by market prices took their toll on the shares of industry players yesterday after one of the country#39;s biggest yellowcake producers said spot prices were falling.

Spot prices for uranium dropped by 6 per cent in the March quarter to $US41.75 a pound, according to Energy Resources of Australia, which produces about 10 per cent of the world#39;s uranium. That means uranium prices are still less than a third of what they were at their June 2007 peak of $US136/lb, despite a much-hyped boom in nuclear power. ERA had previously tipped that 2010 prices should match 2009#39;s. The long-term contract uranium price is also well off 2007-08 highs of $US95/lb at about $US60/lb.

Shares in ERA fell by the most in five months on a combination of its warning of #34;softer market conditions#34; and a sharp drop in first-quarter production. The stock finished $1.17 lower at $18.52. /p pERA, which is 68 per cent owned by Rio Tinto, mines uranium at its Ranger project in the Northern Territory. /p pThe malaise spilt over to other uranium miners and hopefuls, with Paladin Energy losing 15 to $4.19, Bannerman Resources down 1.5 to 51 and Deep Yellow off 1 to 22.5.

Forecasts of a surge in nuclear power plant construction make uranium fundamentals appear attractive. China alone is tipped to increase nuclear power output by nearly 9 per cent a year until 2030, according to the US Department of Energy. On Resource Capital Research numbers, there are 469 new nuclear reactors planned or proposed globally compared to the 436 already in operation. However, the bullish forecasts have not been reflected in prices, which have been held back by reports that China has a two-year stockpile.

Macquarie analysts last month downgraded medium-term price forecasts by about 25 per cent, suggesting they could rise to $US60/lb by 2012 before falling again. #34;Given its large reserves, we believe that China will not be bidding up the spot price any time soon,#34; they said. RCR analyst John Wilson said that in the absence of #34;unexpected exogenous shocks#34;, he anticipated no strong drivers to influence the market this year, flagging uranium to stay within the $US45 to $US45/lb range. The industry remains optimistic. Alan Eggers, who sold Summit Resources to Paladin in 2007 and now heads Manhattan Corp, said prices had been kept low by several factors, including the US selling down its inventory.