U308 Prices Weaken; Bullish Longer Term

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"Declining market surpluses from this year will see prices slowly move higher. . ."

TradeTech updated its uranium spot price indicator to $40.75 per pound on May 21, a slight decline of $.50. The price decline was prompted by several sellers motivated by a variety of factors including the availability of price insensitive inventory, a need to generate cash flow, the weakened euro and nervousness over the European debt crisis.

On Monday, Merrill Lynch issued a report indicating the broker remains positive on the long-term prospects for the uranium market. The commentary highlighted that even allowing for some delays to proposed and planned reactor building the uranium market is likely to shift into material deficit post 2013 if required new mine supply is not commissioned. Declining market surpluses from this year will see prices slowly move higher, with momentum to pick up as inventory and supply security issues gain more attention.

The model implies an average spot price in 2014 of $60 per pound, while there has been no update to the broker's long-term 2015 nominal price forecast of $55 per pound. Long-term price risk is to the upside based on geopolitical risk, incentive price arguments, and any return of speculative buying in the market.

At an EIA press conference last week, Deputy Administrator, Howard Gruenspecht presented the 2010 International Energy Outlook, which revealed some key elements of interest for uranium investors.

In the absence of policy changes to limit their use, fossil fuels, and especially coal, will still continue to provide the majority of world energy consumption in the period to 2035. With fossil fuels set to meet more than 75% of world energy needs in 2035, world energy-related C02 emissions are also likely to grow by 43% over the projection period.

Although there is some uncertainty associated with nuclear power projections, nuclear generation is attracting new interest globally as countries seek to improve energy security, increase the diversity of their energy supplies and provide a low-carbon alternative to fossil fuels. The forecast shows improved prospects for world nuclear power with a projection for nuclear electricity generation in 2030 to increase 9% higher than the projection published last year.

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