The uranium spot price rose for the first time in nearly six months on Friday to $41.50 a pound, up 2.5 per cent according to TradeTech LLC. So far over 4.3 million pounds have been traded for the month of April, nearly double that of January through March combined.
While events such as demand out of Asia or supply problems like those announced by Energy Resources of Australia [ASX: ERA], whose output dropped 9 per cent in the first-quarter, may be helping to advance the spot price, it may be low prices themselves that are interesting buyers.
“If things are cheaper, you buy more,” said Glyn Lawcock, head of resources research at UBS AG. “The price has been under a lot of pressure. Now, there’s renewed demand in all commodities and we’re seeing active talks” concerning the construction of new nuclear plants around the world.
Lehman Brothers Sitting on Yellowcake Holdings
The spike in the uranium price may also be due to an announcement out of Lehman Brothers Holdings that the firm does not intend to flood the market with the surprising amount of U308 inventory it’s been sitting on since September.
Last week, Lehman Brothers confirmed reports that it has nearly 500,000 pounds of yellowcake stored in several locations worth about $18 million. There were concerns that the firm might spark a fire-sale in a bid to pay off its estimated $200 billion in unsecured liabilities.
The firm has been trying to sell the inventory for months; however, with the spot price falling steadily Lehman’s decided to put sales on hold for now.
Lehman CEO Bryan Marshal has made assurances that the stockpile will be sold responsibly. “We plan on gradually selling this material over the next two years,” he said. “We are not dumping this on the market and have no fire-sale mentality.”
How did the brokerage come to possess such a large holding of uranium ore?
The stockpile is leftover from a commodities-trading contract initiated prior to Lehman’s collapse. “A lively financial market in uranium trading has developed in recent years. While commodities such as oil and precious metals are dealt in futures contracts which rarely see delivery, the relative immaturity of uranium trading means that trading firms sometimes end up taking ownership of the stuff,” says the Guardian’s Andrew Clark.
Has the Uranium Spot Price Reached its Bottom?
Despite this latest advance, analysts still remain cautious on uranium’s price for now. Analysts out of Raymond James, for example, do not expect much more movement in the spot price in future weeks and have described their position as “near-term cautious” and “selective” on buying uranium equities. Their top picks? Paladin Energy [TSX: PDN], Nufcor [LON: NU], First Uranium [TSX: FIU] and Hathor Exploration [TSX.V: HAT].
However cautious some may be, others believe there are signs that the price of uranium may have reached its bottom. These signs include the doom and gloom forecasts from firms such as Goldman Sachs and JPMorgan, who have put uranium prices under $50 per pound through 2011. According to investment researcher Eugene Bukoveczky, “such overwhelming bearishness sometimes signals a bottom.”
Other signs include increased market activity. (TradeTech reports four transactions at progressively higher prices totaling over 1 million pounds of uranium equivalent), supply problems (global mine production only meets around 63 per cent of demand), and rising demand out Asian countries like China and India who are actively seeking to stockpile reserves (China recently purchased over 1 million pounds on the spot market).
