Uranium going like a Boeing :
Moneyweb


A major report on uranium’s long-term fundamentals underpins the bulls sampling the metal of the moment.
Barry Sergeant
Posted: Wed, 13 Sep 2006 15:32 © Moneyweb Holdings Limited, 1997-2006
In a major report, RBC Capital Markets has revised upwards its price forecasts for uranium oxide (U3O8) to $44,50 a pound for 2006, “to reflect current market conditions”, and also increased its 2007 price forecast to $55 from $50 a pound “due to our forecast balance shifting from near-balance to deficit”. The uranium market, which is absent of futures contracts, derivatives, hedging and also lacks high speculative turnover, has risen strongly in recent years following anticipation of a nuclear reactor “renaissance” in the face of record prices for hydrocarbons such as crude oil. The spot uranium oxide price has increased from $10 to $52 a pound in just 41 months. RBCCM anticipates that demand for uranium oxide will grow by an average of 2,2% a year over the next 25 years. This outlook is qualified by a hint of positive risk, where RBCCM states that it continues to monitor “developments occurring globally that could lead to a nuclear renaissance that would result in a dramatic increase in demand”. Analysts at RBCCM believe it likely that there will be “a considerable number of new reactor announcements in North America and Europe in the next five to ten years and that China, Russia and India will continue to announce new reactor build plans”.The supply of uranium oxide is expected to grow by an average of 3,8% for the next 10 years. This pace of growth has been stimulated by both higher uranium oxide prices and the need for new supply in the future. After 2015, RBCCM forecasts that uranium oxide supply will decrease by an average of about 5% a year, based on reserve exhaustion. Current high prices have already attracted new production and increased exploration spending to try to “fill the gap”. However, RBCCM anticipates “a significant lag effect due to the time it takes to delineate and permit a uranium mine. We believe the uranium price will continue to remain at levels that are sufficient to justify the continued exploration for, and development of, new producing mines”.The most significant change made to the RBCCM supply/demand forecast is the elimination of the “HEU II” program from forecasts in 2014 to 2025. This will effectively eliminate 20m pounds annually from RBCCM’s non-mine supply in those years. Russia recently announced that there would be no “HEU II” deal that would extend the supply of down-blended HEU into the world market. RBCCM expects that the global uranium oxide market will be in deficit for 2006 and 2007 due to shortfalls on the production side. From 2008 to 2013, modest surpluses are expected, but from 2014 onward projections indicate that there is potential for a “severe deficit”, especially with the announcement that there will be no HEU II.As to downside risks, RBCCM points out that the spot price may some day reflect the mid-term projected surpluses (2009 to 2015). Another downside risk resides with the possibility of a major problem with a nuclear reactor, which could quickly curtail new reactor builds and thereby reduce demand. Finally, on the downside, material owned by speculators and investors could temporarily flood the market.The report covers all known uranium mines and operations, past, present and future: Langer Heinrich, Rossing & others (Namibia), SXR Dominion, AngloGold Ashanti (South Africa); Ranger, Olympic Dam, Beverley, Honeymoon, Olympic Dam (Expansion), Jabiluka (Australia); McArthur River, Cigar Lake, McClean Lake, Rabbit Lake, Midwest/ McClean (Canada); Stepnoye, Central, No.6, Akdala, East Mynkuduk, Inkai, Muyunkum, Zarechnoye, Kharasan, Budenovskoye, Central Mynkuduk, Western Mynkuduk, South Inkai (Kazakhstan); Priargunsky, Dolmatovskoye, Khiagda (Russia); PRI/Crow Butte, Cotter, PRI/Highland/Smith Ranch, URI/Kingsville Dome, URI/Vasquez, IUC/White Mesa, Mestena/Alta Mesa, Churchrock, Henry Mountains/White Mesa (US); and Navoie and Aktau in Uzbekistan.