why the lack of interest, page-22

Where To For Spot Uranium Prices?
FN Arena News - February 05 2008

By Rudi Filapek-Vandyck


Which direction for spot uranium prices? No doubt many remaining shareholders in the likes of Paladin (PDN) or Bannerman ((BMN)) have been asking the question ever since their return from the Christmas break. Spot uranium prices closed calendar 2007 a tad under US$90/lb and that was, by all accounts, simply disappointing. Half a year earlier they looked like they could be heading for twice the figure, and let's face it, even Paladin MD John Borshoff thought spot uranium was heading back towards US$125/lb after the price started to recover from its low at US$75/lb in the third quarter.


The sad truth is that what kept the market mania going for much longer than it would have lasted otherwise in the first half of 2007, is now working against a swift price recovery; the presence of speculators and financial investors in the sector. Market watchers and industry insiders have been pointing out there's currently a much larger overhang of supply on the international spot market than global utilities' discretionary demand and, to make matters worse, upcoming resources powerhouse Kazakhstan has been flagging massive production increases for the years ahead; it all doesn't exactly make for an ideal platform to return to the halcion days of late 2006, early 2007.


So where are spot uranium prices heading?


According to a spot price projection which we believe has been derived from data collectors Thomson Analytics, current expectations as expressed in securities analysts' price forecasts do not foresee an imminent end to the current sub-US$90/lb price environment with an apparent market consensus forecast for the first three months of calendar 2008 of US$85/lb. This assumes a continuation of price developments in the final quarter of 2007, when the average spot price was around the same figure.


The good news is, however, that projected price averages shoot up to US$105/lb for the second and the third quarters this year, while current consensus for the final three months of 2008 stands at US$112.50/lb. In other words, if the global analyst community gets it right this time, the current malaise on the international spot market for yellow cake should sort it outself out in the weeks ahead and then open the gates to a solid price recovery. Hey, at these projections investors may even start dreaming of seeing US$120 or more again before the end of this year.


Of course, all this is on the assumption that these consensus price projections will prove to be correct. Were we to play the role of the devil's advocate, we'd remind everyone that throughout 2006 these same securities analysts were far behind in their price projections and continuously lagging actual market developments. When they finally decided to take a leap forward and put price projections ahead of the spot market in early 2007 they proved to be wrong again as those price projections subsequently had to be lowered a few months later.


As it turns out, were current consensus projections proven to be accurate by the end of this year the average spot price for uranium concentrate will have hovered around the US$100/lb mark for both 2007 and 2008 (yes, that's right!) and that's gotta be a big surprise to everyone involved in the industry. It suggests we are witnessing a virtual stand-still on the public pricing front, extreme volatility levels in between not to be dismissed, of course.


Such a price prospect for uranium also featured in a recent update by Canada's Scotiabank on commodity prices forecasts. The document reveals an ongoing positive sentiment towards potash (fertiliser), silver and wheat, to name just a few, but not towards uranium with the average price forecast for 2008 expected to end up in the range US$95-100/lb - similar to what market consensus is suggesting (with implied downside risks).


In the meantime the U3O8 spot market continues to feel the weight of downside price pressure. After industry consultant Ux Consulting took an axe and slashed its weekly spot price indicator to US$78/lb last week, fellow spot price publisher TradeTech responded by going even lower: US$75/lb. As TradeTech points out in its end of the month update, spot uranium prices have now descended from US$89 by the end of December to last year's September low of US$75/lb; a price decline of US$14, or for those percentages fanatics among our readers: minus 16% (more or less).


According to TradeTech the market in January saw a few aggressive buyers trying to trigger some buying interest for their product through heavy price discounting. This soon triggered a similar response from other sellers. No doubt all this happened to the great delight of those buyers who managed to secure a combined total of around 1 mln in U3O8 equivalent throughout the month.


However, in spite of what one might have expected, the ever declining spot price has again attracted the interest from speculators with TradeTech reporting three of eight reported transactions involved "speculative buyers". The consultant suggests a parallel with September last year when a similar pattern developed pushing the spot price equally to a low of US$75/lb. After that, TradeTech reminds us, a recovery to US$90/lb followed.


The long term price indicator has remained unchanged at US$95/lb.