Uranium Demand to Drive Upside Price Pressure

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"Analysts forecast uranium prices will rise 19% in 2011."

A report issued last week by Morgan Stanley forecasts that uranium prices will average $52.25/lb. next year, an increase of 19% higher than this year. Analysts expect that, as new supply becomes available, the demand for nuclear fuel will outpace production capacity.

Although it is certainly not the first forecast for strengthening uranium prices, the message may send prices higher if utilities act sooner to attempt to build inventories before the impending inflationary pressure mounts. A nearly balanced uranium market makes prices "vulnerable to supply shocks and/or new build announcements," Richardson and Crane wrote.

The average spot price this year is 6% below the previous year and almost 30% lower than the average in 2008, according to the report. "The steady, two-year erosion in uranium prices has translated into difficult mining breakeven points, particularly for new uranium projects," the analysts said.

As of October 1, the countries with the largest number of planned and proposed new nuclear reactors are: China 159; India 60; Russia 44; USA 31; Ukraine 22; and South Africa 15. The report cites that demand from developed economies is also set to rise on "concerns over carbon-emission costs and energy-supply security."

The new plants will require 32,900 tons of nuclear fuel, almost half of the demand from this year's 443 commercial reactors. Most of the demand growth will have to be met by mines as secondary supplies from recycled Russian warheads may cease with the end of an international agreement in 2013.

Spot Prices Jump

The spot price of uranium jumped 5.6% this week, increasing $2.75 to $52/lb. as reported on Monday by UxC trade consultants.

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