Merrill Lynch Raise Uranium Price Forecasterrill Raises Uranium Price Forecast on Mine Delays (Update2)
2006-12-11 02:00 (New York)
(Updates prices in sixth paragraph.)
By Gavin Evans
Dec. 11 (Bloomberg) -- Merrill Lynch & Co. raised its 2008
uranium price forecast by 78 percent, citing delays in new mine
output and increased demand for the fuel from nuclear reactors
being built in China and India.
Uranium for immediate delivery may average $75 a pound in
2007 and $80 in 2008, Merrill said in a Dec. 8 report. Uranium
has averaged $46.58 a pound this year, according to U.K.-based
industry publisher Metal Bulletin Plc, beating the $44.12 the
securities firm forecast in July.
Uranium has gained 78 percent this year as record oil and
gas prices and emission charges on fossil-fueled generators
spurred demand for alternate sources of energy. The radioactive
metal, currently $64 a pound, has gained almost $8 since Cameco
Corp., the world's biggest producer, said Oct. 23 its Cigar Lake
project in Canada will be delayed after a flood.
``We don't see a major trigger on the horizon that will
force spot prices down,'' Merrill analysts Vicky Binns and
Daniel Hynes said in the report. ``The delay of Cigar Lake and
the imminent arrival of India into the commercial fuel market
have created a notable increase in demand.''
About 440 reactors contribute 16 percent of the world's
electricity currently, according to the World Nuclear
Association. At the end of November, 28 plants were under
construction with a further 62 ordered or planned. India, which
runs 16 reactors, is building another seven, and targeting
nuclear capacity of 40,000 megawatts by 2020.
Cigar Lake
Merrill had expected 2008 prices to decline after averaging
$53 in 2007. Uranium surged 76 percent last year, according to
Metal Bulletin. The metal was at $64 a pound on Dec. 8.
Analysts have raised uranium price forecasts and slashed
production assumptions since the Cigar Lake flood.
Prices may average $100 a pound in 2007 before easing to
$85 in 2008 and $75 in 2009, Toronto-based RBC Dominion
Securities Inc. said Nov. 17.
The mine, which would have provided about 10 percent of the
global supply at full output of 18 million pounds a year, may be
delayed by two years, RBC Dominion said.
Cameco plans to provide a revised timeline and cost
estimate for Cigar Lake in February.
Uranium may gain at least $10 a pound next year and will
``probably spike higher'' if the next news from Cigar Lake is
worse than previously thought, said Jean-Francois Tardif, senior
portfolio manager at Sprott Asset Management Inc. in Toronto.
Prices may climb to between $75 and $90 in the spring of
2007, Tardif said in an e-mail.
New Mines
Merrill has assumed Cigar Lake will be delayed at least a
year. Third-quarter output from BHP Billiton's Olympic Dam mine
in South Australia was also down 8 percent from their preceding
quarter, the research firm noted.
Merrill is forecasting global supplies, estimated at 164.8
million pounds this year, to rise 4 million pounds during the
next two years. Increased demand in Russia will limit exports
while rising costs and planning delays are likely to slow output
from smaller projects worldwide.
Still, Kazakhstan has the potential to ``flood the market''
if it meets its 2010 output goal of 39 million pounds, Merrill
said. The nation produced about 10 million pounds in 2005, and
Merrill's forecasts assume that will climb to 26 million by 2010.