U price
In the Market
Update for the public provided three days after publication.
September 19, 2008–The week of September 15 has finally come to a close and the turmoil that has defined the financial markets was uncharacteristically mirrored in uranium equities and the physical uranium market. Until 2004, the uranium market was unknown to commodities investors, being dominated by utility companies (consumer/buyers), producers (sellers), and a handful of physical traders. Beginning in 2004, commodities investors (mostly hedge funds) have become major players in the cash (spot) uranium market.
There are fundamental reasons that uranium prices generally do not correlate with indicators of general commodities market prices or with general equities market prices, as the underlying demand for uranium (for nuclear power plants) is not sensitive to general economic activity. This non-correlation with other indices has been a primary factor in attracting investors, as it possesses many of the qualities desired in hedging tools. The expected high growth of uranium demand in China, India, South Korea, and Japan is expected to keep the pressure on rising uranium prices, while persistent problems on the supply side add “fuel to the fire.”
The advent of interest by the investor community in uranium and volatility of uranium prices over the past four years has led to attempts to establish more structured markets for physical uranium and its derivatives. NYMEX, for example, launched its uranium futures contract in May 2007, and two publicly traded funds (Uranium Participation Corp.-Toronto Stock Exchange and Nufcor Uranium Ltd.-London Stock Exchange AIM) have been established to allow investors to participate in the physical holding of uranium. In terms of sophistication, the uranium market is still in its infancy, and as demonstrated this week, not entirely immune to the effects of the overall market.
Spot uranium prices, which were under downward pressure early in the week, dropped precipitously at the mid-week point coincident with the fraying in the general economic markets. At least one distressed seller completed a sale at a price several dollars below the most recently published prices. By the end of the week, however, three other transactions had been concluded at prices above those observed at mid-week. Utilities are returning to the market as buyers. Sellers appear to have regained their confidence in the future outlook for the uranium price and were less aggressive in pursuing buyers. New demand emerged with a non-US utility requesting offers for several hundred thousand pounds U3O8. TradeTech’s Spot Price Indicator ended the week at $60.00 per pound U3O8, down $3.00 from last week’s value.