Is Uranium's 3-year Bear Market Over?
Source: Telegraph, Garry White (7/25/10)
"Speculation mounts that China will tip sentiment in the bulls' favor."
Then reality set in. The credit crunch caused an unwinding of the global economy and the uranium spot price plunged. It currently sits at $41.75. The price has collapsed by 69pc in a 3-year bear market but speculation is mounting that China may be about to tip sentiment in the favor of bulls.
The Chinese have been buying stockpiles of a number of commodities while prices are low and it looks like they could have focused their sights on uranium.
The World Nuclear Association (WNA), a trade body for the industry, estimates that the country only requires 2,875 tons of uranium this year to keep the 11 reactors in operation in fuel. The country currently has 24 reactors under construction and the WNA predicts that China could have built up to 200 reactors by 2030.
A total of 59 new reactors are under construction around the world, according to the WNA data. Russia is currently building 10 reactors; South Korea is building six; and India four. The other reactors are under construction in the US, Slovakia, Argentina, Finland, France and Japan.
Analysts expect the price to jump by one third next year, which will be its largest gain since the euphoria of 2006. The general expectation is that price could hit $55 next year, but the bubble days of $136 a pound do not look like they will return any time soon.
All of this means that uranium supplies are likely to exceed demand over the next few years, according to mining consultants CRU.
However, China's ability to distort the market should not be underestimated.