Future Tense


Another price surge rippled through an already supercharged market as the New York Mercantile Exchange launched its first-ever listing of uranium futures contracts.

Another price surge rippled through an already supercharged market as the New York Mercantile Exchange launched its first-ever listing of uranium futures contracts on Monday, May 7.

NYMEX’s joint venture with Ux Consulting, the leading source of nuclear industry market information, changed the rules of the uranium game for all involved and sent the spot price to an all-time record of $120/lb.

According to ResourceInvestor.com, the June contract hit $140/lb in its first day, with January 2008 U308 trading at $150.50/lb. A Ux Consulting Company (UxC) spokesperson told RI that as the current date gets closer to the futures settlement date, “you’re going to see the gap narrow” between the spot price and the contracts.

Until now, utilities purchased fuel for their reactors in contracts that guaranteed supply but not a fixed price. The price floor was set at market price on contract-signing day, but they paid market price on the day of delivery.

The NYMEX/UXC project is intended to change that, said Jeff Combs, president of Ux Consulting. He said it will add transparency to the global uranium contract market and "development of a forward price curve."

"In other words, this contract runs out 36 months on a monthly basis so there will be price points, bids and offers out in the future indicating what people think is going to happen to the market and what position they're willing to take in either buying or selling depending on what they think the price is going to be," Combs said. "The only way you can get fixed prices in the future is to buy uranium on the spot market and hold it, but that's not too practical if you're going out further in the future, and especially since spot supplies are tighter now than they are likely to be in the future. And that's the other purpose of futures markets is it provides the hedging function."

What impact the NYMEX listing will have on the uranium market is open to speculation. StockInterview.com reported that uranium company stocks rallied last week in advance of the NYMEX listing.

Speculators and miners -- those affecting and setting the price now -- are likely to benefit, said James Finch, StockInterview.com’s senior editor."Everybody's on a wait and see -- except for the speculators," Finch told UPI. "Utilities see this as an opportunity to fix a price which has right now gone completely out of control."

Spikes in pricing have become almost routine as the pressure to satisfy a growing global energy deficit with nuclear power gives uranium nowhere to go but up. Since January of 2001, the spot price of uranium has jumped more than 1700 percent!

The futures contracts gives nuclear power plants “a forum to bet directly on gains and falls in the price of uranium, rather than speculating on the fortunes of miners, “explains Richard Simpson, in StockHouse.com.

Some believe the NYMEX futures could fuel speculation sending the price to the moon. "Futures trading is where speculators are going to get involved in uranium with both hands. Uranium futures could put us at $500 per pound in the blink of an eye, because they'll give hedge funds a way to trade in and out of uranium easily," says Sean Brodrick, editor of Red Hot Resources.

For those investing in uranium producers, there is nothing more we'd like to see than the prices to continue to trend higher or 'spike' higher," says Kevin Bambrough, a market strategist at Sprott Asset Management.

Results of a recent poll of a cross-section of SeekingAlpha’s readership showed that 83% believed that the NYMEX futures contracts would attract more interest in uranium. Seeking Alpha also got an expert opinion from TradeTech Chief Executive Gene Clark: "The most interested parties have been the electric utility company fuel managers, who seem to be willing to try anything new that will give them the power to halt the price run-up." He also pointed out utility fuel managers have "little, if any, experience in such (futures) markets."

By contrast, after having discussed futures trading with professional traders, Dr. Clark wrote that those with the most experience are the most skeptical. His conclusion, “Utility fuel managers want to use futures trading to hedge their upside price risk, while potential sellers generally expect prices to keep rising precipitously.”

Regardless of their role in the market, all involved seem to agree on one thing. Volatility will rule uranium’s future.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe