Big Squeeze

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BIG SQUEEZE: The price of uranium has risen 810% in the past four years according to Keith Kohl of the newsletter, Energy and Capital.

The price of uranium has risen 810% in the past four years according to Keith Kohl of the newsletter, Energy and Capital. On Friday TradeTech's Nuclear Market Review magazine raised the weekly spot uranium price to US$95/pound. Many analysts predict the price will explode past the $100 mark this year.

According to Kohl, “the emerging global energy crisis has thrown nuclear energy into the spotlight. While a few alternative energy sources are making headway, future global demand will require energy on a vast scale - something nuclear power can provide.”

Uranium’s bull run is a spectacular example of demand stampeding supply. According to Moneyweek.com, the world’s 440 nuclear reactors require more than 150 million pounds of uranium every year. Although totals aren’t in for 2006, “demand probably topped 180 million pounds.” There are 28 reactors under construction and 62 more being planned. According to the International Atomic Energy Agency, the IAEA, there may be as many as 130 new nuclear power plants being built in the next 15 years.

Cameco’s disastrous flooding at the world’s largest undeveloped, high-grade uranium mine, its Cigar Lake Mine in Saskatchewan, rattled the nuclear power industry last fall. Then along came another mine flooding in Australia when cyclone George struck, putting a big squeeze on already tight uranium supplies. Energy Resources of Australia had to declare force majeure on its sales contracts. ERA estimates that first-quarter production will drop 20% to 30% from last year.

Doug Casey, author of Casey’s Energy Speculator, sees another force at work pushing prices higher. “A number of money managers have been buying physical uranium in the hope of simply holding it while the price rises.” Casey notes that although it is unclear how many groups actually own physical uranium, “… analysts generally agree that hedge fund demand has helped push up the price.”

Unlike commodities such as gold or oil, there is no formal exchange for uranium. Uranium price indicators are developed by a small number of private business organizations, like The Ux Consulting Company, LLC (UxC), that independently monitor uranium market activities, including offers, bids, and transactions. UxC maintains that “the low prices that persisted through the 1990s up until 2002 held back production, exploration, and procurement activity, even though there was strong evidence early in this decade that the market was experiencing a fundamental shift that would lead to pressure on production and much higher prices.”

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