Uranium is running hot
Mandi Zonneveldt
June 06, 2007 12:00am
Article from: Herald-Sun
THE price of uranium - already up 85% since January - could reach $US200 a pound within two years, according to Australian securities firm, Macquarie.
Analysts have been forced to revise their forecasts for the nuclear fuel upwards after its dramatic run so far this year, driven by dwindling supplies and limited expansion opportunities.
The spot price of uranium rose to $US138 a pound last week. It began the year at $US72 a pound.
Macquarie analysts Max Layton and John Moorhead believe the price will average about $US125 a pound this year, but have tipped a peak of about $US150 a pound by year's end.
"We would not be surprised to see prices move up to around $US200 a pound over the next two years," they said, citing significant supply deficits and growing interest in speculative trading.
The world uranium market is expected to remain in deficit for at least the next two years as secondary supplies of ex-military uranium are depleted and miners race to catch up with demand.
In March, Paladin Resources shipped the first uranium from its Langer Heinrich project in Namibia -- the world's first new uranium mine in more than a decade.
Canada's Cameco was due to bring on the giant Cigar Lake mine soon, but a flood last October will delay production until at least 2010.
At the same time, concern about climate change has prompted a rush towards nuclear power, with 30 new nuclear reactors under construction and 74 more planned.
Macquarie has forecast a 14.4 per cent rise in reactor requirements as a result of that growth, but demand could be much higher with a further 182 reactors proposed, mostly in Asia.
Prime Minister John Howard is pushing the case for nuclear in Australia, telling the Liberal Party's federal council meeting on Sunday that lowering greenhouse gas emissions "of necessity must include nuclear power".
Resource Capital Research recently raised its uranium price forecast to $US125 a pound in 2007 and $US140 a pound in 2008.
Neal Froneman, chief executive of SXR Uranium One, which is developing the Honeymoon project in South Australia, has predicted the spot price could hit $US250 a pound next year.
The fervour surrounding uranium pushed the value of Australian uranium explorers up 23 per cent in the first three months of this year and has seen hedge funds and speculators wade into the spot market.
Macquarie said reports suggested almost 20 per cent of mine supply, or about 8000 tonnes of uranium, was being held off the market by traders - and it tipped increased speculative activity could quickly drive prices lower.
"Traders, speculators and hedge funds could very quickly become drivers of the down leg to this cycle, in the same way as they have been a major driver of the recent upswing," Mr Layton and Mr Moorhead said.
The New York Mercantile Exchange also launched a uranium futures market last month, which Macquarie has described as a "potentially bullish wildcard".
The June contract closed yesterday at $US137 a pound, while the December contract was at $US148.