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Myra Saefong's Commodities Corner
Uranium's set to make waves in futures
New York Mercantile Exchange, Ux Consulting to launch uranium futures
By Myra P. Saefong, MarketWatch
Last Update: 12:56 PM ET Apr 27, 2007


SAN FRANCISCO (MarketWatch) -- It's hard to ignore any commodity that's seen a more than 1,000% price climb over the course of five years, especially one that's about to be traded on a futures exchange for the first time.
Weekly spot prices for uranium stood at $113 a pound on April 23 -- that's an 11-fold increase from the $10 it cost in 2002, according to data from Ux Consulting Co. See the Web site for the latest price.
It's no wonder that the uranium industry and potential investors are all abuzz following an agreement between Ux Consulting and the New York Mercantile Exchange, a unit of Nymex Holdings announced last week to introduce on- and off-exchange traded uranium futures products on May 6.
"The fact is, there's a need for a uranium futures market," said Sean Brodrick, a contributing editor to MoneyandMarkets.com, who has often written about the uranium rally. Read his related Internet blogs.
"The way things are now, most uranium is sold under long-term contract and some is sold under short-term contract," he said. "But liquidity can just dry up [and] it's hard for utilities to make plans if they don't know what the real price of uranium is."
"It's about giving transparency to a very illiquid market," said Kevin Bambrough, a market strategist at Sprott Asset Management.
'Since we are moving off the age of oil and into a nuclear era, it's about time we had some liquidity in the uranium market and some visibility into pricing in outer months.'
— Kevin Bambrough, Sprott Asset Management
And Nymex has "correctly identified that the nuclear power industry is undergoing a renaissance with tremendous growth ahead, as the world struggles to deal with strong emerging market and Asian growth, while facing the reality of peak oil and an energy-constrained world," he said.
Sprott predicts that "the combination of high energy prices, pollution and global warming will compel the world to attempt to build as many nuclear reactors as possible going forward," said Bambrough.
"You can say what you want about nuclear power but you're if worried about global warming, one of the ways to deal with that is nuclear power," said Phil Flynn, a senior analyst at Alaron Trading.
"Since we are moving off the age of oil and into a nuclear era, it's about time we had some liquidity in the uranium market and some visibility into pricing in outer months," said Bambrough.
Limits to the trade
The lack of a public-trading platform for uranium as a commodity had been a key complaint of prospective investors. Read a related archived story.
"Nymex uranium futures will now make speculating in uranium fast and efficient," said Scott Wright, an analyst at financial-services company Zeal LLC. And "the price of uranium could really jump from today's levels with this new flow of capital."
The uranium futures products will be introduced next month on the CME Globex and Nymex ClearPort electronic platforms, Nymex and Ux Consulting said in a joint press release.
They will be financially-settled contracts and there are no restrictions related to that, according to Randolf Warsager, vice president of marketing at Nymex.
Traders won't take possession of the commodity, but they can take title of it and get some exposure to its price, he explained.
That separation from the physical market could end up being one of its biggest flaws.
Gene Clark, chief executive at TradeTech, said the people who have the most experience in uranium markets appear to be the most skeptical of the futures exchange.
"They generally don't see how such a market could take hold, given the lack of the basic elements for such a market to evolve -- a liquid spot market and the absence of a linkage to the physical market for the commodity," he said.
Linkage to the physical market is "nearly universally the case in other futures markets," he said. And "with the Nymex futures market being purely a financial instrument, it runs the danger of diverging significantly from the physical market."
As a commodity, it has been, in many ways, invisible to the public over the years, said Clark. Uranium has traditionally been traded only between end users, such as electric utility fuel managers and uranium producers, he said.
"Private ownership of uranium has been legal in the USA only for the past 40 years, and physically possessing it requires a license from the various regulatory bodies," Clark said.
And there is "really only one use commercially for uranium: the generation of electricity," he said. See TradeTech's uranium information site.
In a statement, Nymex Chairman Richard Schaeffer pointed out that uranium itself is "uniquely positioned to act as a complement to both our energy and metals product offerings."
"Strictly speaking, it's undeniably a metal, but Nymex views it as an energy contract based on its primary use as fuel for nuclear reactors," said the exchange's Warsager.
Nymex will initially offer futures contracts and when liquidity and open interest support it, the exchange will launch options contracts at the appropriate time, he said.
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