quiet day on the markets so thought I'd share some info on the future prospects of Uranium courtesy of a 'Fat' researcher friend of mine. I'm sure you've heard it all before but still worth a read:
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With energy costs continuing to surge to record-highs, we reiterate our view that one of the truly forgotten sectors over recent times, uranium, is set for resurgence. Given the strong performance of all other forms of energy recently, including crude oil, natural gas and thermal coal, it is logical that uranium must play catch-up at some stage soon. As the price of these traditional fossil fuels increases, governments worldwide will look more seriously at initiating or accelerating their nuclear development programmes.
In comparison with virtually all other commodities, not just energy, the performance of uranium has been extremely disappointing.
A large part of the problem was the rapid rise in the price of uranium, at what turned out to be an unsustainable rate. From record highs of close to US$140 a pound last year, the price has since fallen by more than half to below US$60 a pound at present. All of this must be seen in its proper context however, with uranium still almost ten times higher that it was around five years ago.
We remain comfortable with the longer-term outlook for the uranium price, based on sound market fundamentals driven by solid demand. Ironically, the respective prices of uranium and crude oil have moved inversely to each other, as reflected in the following chart (sorry dont know how to add charts). How long can this situation last, we ask?
Well, in our view the turnaround is underway. Last week, uranium rose for the first time this year, ending a seven-month drop in which the metal declined by almost 40%. According to industry group, TradeTech, uranium-oxide concentrate for immediate delivery climbed to US$58 a pound, $1 more than a week earlier.
Just recently, Bloomberg reported that the uranium industry's worst year was about to collide with a nuclear construction program in India and China that rivals the ones undertaken during the oil crisis of the 1970s. India will start up three reactors this year, with another six due in 2009, in India, China, Russia, Canada and Japan.
The year-long decline in uranium contrasts with record prices for oil and coal as Asian energy demand expands and concern mounts that emissions will cause global warming to worsen. The world needs to build 32 new nuclear plants each year as part of measures to cut emissions in half by 2050, the Paris-based International Energy Agency claims.
Due to malfunctions that shut reactors in Japan, the UK and Germany, nuclear power production and uranium use fell by 2% during 2007, only the third time consumption has fallen since the 1970s. Given escalating costs in the mining industry, real uranium prices are unsustainably low in our view and must rise to improve mine profitability and guarantee current and future uranium supply.
China started two units during 2007 and will bring on three more through 2011, says the World Nuclear Association. Yet China is well behind the pack in terms of nuclear power generation, with the country sourcing just 2% of its power needs from uranium compared with 16% globally at the present time.
Uranium demand was 66,500 metric tons last year, according to data from Denver-based consultant TradeTech LLP. Uranium use now is 69% higher than the 39,429 tons that was mined during 2006, with the balance coming from inventories and decommissioned weapons.
Over the longer-term, uranium demand is set to increase as existing reactors are brought back on line and nuclear energy gains new converts. South Africa, which is struggling to meet electricity demand, plans to award a contract for construction of a 120 billion-rand (US$15 billion) nuclear plant. In the UK, the government wants more atomic capacity to reduce its emissions.
Meanwhile in the US, Republican presidential candidate John McCain has stated that he will push to almost double the number of nuclear reactors to lessen the nation's dependence on foreign oil. Democrat Barack Obama also backs nuclear power. There are 104 reactors operating in the U.S., though the last to come on line was in 1990.
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Have a good weekend.
SW
BMN Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
(20min delay)