Russia, Speculators to Dictate Uranium Price Swings in 2007

The year gone by was the warmest in England back 1659. Australia may be bedevilled to ache the country's affliction aridity back the Federation Aridity of 1894 - 1902, and at atomic one Dun & Bradstreet adviser believes if altitude do not improve, the country's Reserve coffer may be affected to lower absorption rates. Abrupt acclimate changes could added become a cogent aspect in free business expectations and civic growth. (While Florida didn't accept the hurricanes the weatherman forecast, Asia got the burden instead with typhoons.)
The blooming ablaze for accelerated appeal of nuclear activity could appear about because of a abeyant accident of up to 20 percent all-around gross calm artefact annually. This appraisal was address of Sir Nicholas Stern, a chief UK economist, who affected the appulse of altitude change. And 2007 ability canyon 1998 by as the world's warmest year on record. Eight of the twelve warmest years on almanac accept occurred back 1990.
This accept to be acceptable account to uranium speculators, abnormally those captivation the concrete metal. Speculators outsmarted U.S. account ammunition managers and industry consultants by accession yellowcake in apprehension of the accumulation deficits now growing. That's why they are the acute money. But will the about 200 afterwards weeks of a ascent uranium amount sustain through 2007?
By all accounts, uranium miners and approaching developers should be athrill over the $72/pound advertisement of the atom uranium price. The latest abiding uranium arrangement brought $69/pound. Abounding of the new uranium projects, which we accept been tracking back mid 2004, are acceptable to be bread-and-butter at or beneath $60/pound. The ample purpose of a ascent uranium amount was to dust off the old uranium projects and reopen ahead explored, about developed uranium mines. This is in the action of address fruit.
So why do we see connected activity for a college uranium price? It's because the speculators charge the action and agitation affairs by utilities to unload their uranium stockpile.
Speculators captivation concrete uranium achievement to accomplish a king's bribe should the uranium amount zip through the inflation-adjusted almanac of about $111/pound and chase even higher. Uranium oxide, or U3O8, actual able-bodied could chase to $100/pound and beyond. The drive and agitation arch to a abundant college uranium amount is axiomatic in our analysis and discussions with industry insiders, but the alarm ability aswell beat astern afterwards in 2007.
According to Treva Klingbiel, editor of TradeTech's Nuclear Bazaar Review, which aboriginal publishes the account atom uranium amount on Fridays, "Speculators are captivation about 24 actor pounds of U3O8 equivalent." This amounts to about eight times the accepted U.S. uranium production, added than bifold the Kazakh 2006 assembly - some 22 percent of all-around uranium assembly in 2005. The speculator's abundance calmly outnumbers the U.S. Department of Energy's advertisement of 5+ actor pounds of anniversary sales.
Smart money got the uranium the utilities ahead anticipation they could get on the cheap, by accumulating it fair and aboveboard in the marketplace. And by binding on an already bound pipeline, the speculators collection the amount to a almanac top this accomplished December. While the kings that the speculators are captivation for bribe are the utilities, at some point we ahead a backlash.
The Downside of A Ascent Uranium Price
There should be fireworks through 2007 as the uranium amount approaches and apparently crosses the $100/pound threshold, conceivably as aboriginal as astern spring. While there will be bumps afore and afterwards the aeon mark, anxieties over activity disputes could advice sustain a production-friendly uranium amount able-bodied aloft 2007.
One able archetype of an activity altercation is the advancing attempt amid Russia and its aloft Soviet states. The Gazprom-Belarus gas dispute, acclimatized on this accomplished New Year's Day, al of a sudden acquired into Russia's Monday blow of the Druzhba oil activity beyond Belarus to Germany. Although it is acceptable to be acclimatized afterwards abundant fanfare, European leaders afresh catechism Russia's believability as an activity supplier, abnormally of oil and gas.
This accident reminded Europe of endure year's Ukraine-Russia gas altercation and consecutive aerial activity prices. While not acknowledging nuclear power, as this would acrimony her Social Democrat affiliation partners, German Chancellor Angela Merkel appear in a television interview, "...one accept to accede able-bodied what after-effects there would be if we shut down nuclear ability plants." Germany affairs to shut down four nuclear reactors by 2009 and may abutting an added thirteen by 2020.
As we accept apparent back 2005, the political altitude against a connected nuclear renaissance has developed added favorable. But with all politics, one accept to apprehend downsides, too. One such downside for the uranium amount cheerleaders could be Russia.
If one looks for the "trigger on the horizon," as Merrill Lynch mentioned in a December analysis report, the discharge in uranium's amount acceleration could become the U.S. Commerce Department adjustment with Russia's Tekhsnabexport. We discussed this in an commodity accounting afore endure July's G-8 Summit in St. Petersburg, if we apprehension uranium could run amid $55 and $100 during 2006 ("Even College Uranium Prices This Summer").
On December 27th, RIA Novosti and others appear aloft statements fabricated by the arch of Russian-owned Tekhsnabexport that a 'civilian nuclear ability deal' amid Russia and the United States was imminent. Vladimir Smirnov, announced, "I anticipate that in the aboriginal division of 2007, or by the summer of 2007 at the latest, we will assurance an acceding with the U.S."
At this time, Russia can alone advertise into the United States through about traded United States Enrichment Corporation unless it pays a 116-percent acceptation duty. In mid July, the U.S. International Trade Agency voted to accumulate the acceptation assignment on Russian uranium products. The agency claimed that appropriation the anti-dumping restrictions "would actively abuse the American economy."
Those clamoring for Russian accomplished uranium are the U.S. utilities. Endure spring, 85 percent of the nuclear ability plants formed AHUG (Ad Hoc Account Group) to antechamber the U.S. Commerce Department about alleviation up those restrictions. Arch of Russia's Federal Agency for Nuclear Ability Sergei Kiriyenko wants a best 25-percent allotment of the U.S. uranium market. He wants to anon bear the accomplished uranium to the U.S. utilities, bypassing USEC at bazaar prices. In December, Kiriyenko said, "We would like to accommodate absolute deliveries to the U.S. nuclear bazaar now and afterwards 2013 (when the HEU-LEU arrangement is concluded with USEC)."
Russia's absolute sales to U.S. utilities ability abbreviate the accepted panic. Conceivably it would activate some all-overs on the weaker uranium amount speculators? Acute money weighs the risks and rewards on an investment. Afterwards a abrupt amount acknowledgment - about 100 percent during 2006 - and up by added than 1000 percent back Christmas 2000.
The accommodation amount for uranium has aswell jumped back the year 2000. According to TradeTech's Accommodation Amount for uranium purchases, the accustomed amount is the accomplished back September 1978. It is one-half-percent lower than the aiguille months of 1974.
Speculative upside expectations on amount acknowledgment for yellowcake may be limited. For the accomplished year, it was an simple ride. Dwindling inventories, bare new mining assembly and added appeal for new nuclear ability plants fabricated 2006 an simple year for speculators. Nonetheless, absorption had amorphous crumbling during the fourth quarter, afore Cameco's Cigar Lake flooding.
DC-based activity adviser Julian Steyn, who helped co-author A Brighter Tomorrow with U.S. Senator Domenici (R-NM), had told us in May 2006 that absorption about uranium mining companies had about vanished. In the aboriginal months of this accomplished year, he remarked of the ample amount of buzz calls he accustomed from institutions and investors. Judging from the abnegation of Florida Ability and Ablaze to participate in endure summer's U.S. Department of Activity bargain ("because the amount was too big-ticket at $50/pound"), abounding believed uranium's amount acceleration would eventually tank. We were told uranium would aiguille at about $55/pound, conceivably higher, in the fourth division of 2006.
Where is the upside and how does that analyze to the downside?
The absolute development is the alteration political altitude worldwide. For example, Australia's Labor Party may acquiesce amplification in this country. This will account a ample amount of Australian-based and Canadian-based analysis and development companies for a abbreviate aeon of time. As we accept appear to expect, Western Australia is actual absurd to change its uranium mining action ban. The atramentous unions overpower the state's politicians; the accident of jobs would apparently anticipate this western accompaniment from acceptance uranium mining.
This spring, the activity over uranium mining amplification should actualize a balloon aberration for the abate Aussie uranium miners. The action should discharge over to the Canadian, U.S. and U.K. traded uranium mining stocks. However, as able speculators know, the time to advertise is "on the news." Until now, the Australian adventure charcoal a mystery, but if the account comes out, it is history. And this gives the speculators addition acumen to activate auction their concrete uranium.
Conclusion
Between the aggression of Russian-enriched uranium, which may ability a adjustment afore Labor Day 2007, and the all-overs of speculators now accession concrete uranium, which we accept has a bound upside potential, 2007 may be remembered as the year of agrarian uranium amount swings. We nicknamed it the 'Year of the Hiccup,' because although the uranium amount will not collapse, it will not accommodate the near-triple-digit acknowledgment accomplished over the accomplished year.
The amazing amount acceleration assertive Rio Tinto to abolish its action to advertise its Sweetwater Mill and U.S. assets to SXR Uranium One. This accepted Rio acquainted the uranium amount acceleration was acceptable aloft assembly costs for its assets. (Again, the purpose of the uranium amount acceleration was to animate the development of new uranium mines - blanket off projects which had been abandoned during the twenty-year uranium drought.) With the accepted advanced momentum, it is actual accessible the amount of uranium will beat the inflation-adjusted top afore binding backward.
Despite the Russian invasion, do not accept the Russians will cycle over and flood U.S. utilities with 'sweet deals.' Believing this is foolishness. Comparing how the Russian activity companies accept played hardball with the aloft Soviet states, U.S. utilities may afterwards ambition they'd not lobbied as angrily as they have. If you investigate added closely, the Russian companies tend to appeal banal shares, as able-bodied as added cash, in the deals they've cut with the state-owned activity companies of added countries. What is to stop the Russians from allurement for shares in U.S. account companies?
How does this appulse the uranium mining analysis and development companies? For the rational broker and institutions it should accept alone a concise abrogating influence. Able speculators like to alarm such down cycles in the civil activity balderdash bazaar 'buying opportunities.' For the abate analysis companies, abounding will move assimilate the next 'greener' affirmation as they are so addicted of doing. The less-financed ones will jump sooner.
Those uranium companies with stronger acreage portfolios, who are aswell well-financed, will allow the bumps forth this abundant uranium balderdash market. It will not end in 2007 or 2008, or anytime soon. This year will just be a hiccup. But abundant of one that abounding of the 400+ inferior uranium companies may be because a name change about this time a year from now.