Rob:
There is no question that there remains a substantial deficit
in production supply, that is ongoing, and expected to go on for
several years. The question is when, not if the price will rise.
In fact the Uranium price has appeared to have bottomed in late
1998 early 1999 at around $8.75. It has since risen to nearly $11,
but has backed off slightly in the past week.
The deficit numbers are staggering. Demand is now about 160 million
pounds per year, and is expected to rise to 171 million within the next six years or so. Supply based on Western production in 1999 is only about 65 million pounds, with another 20 million provided by conversion of weapons grade uranium for commercial use, and another
20 to 40 million pounds from reprocessing and production from the CIS.
This leaves us with a deficit of 35 to 55 million pounds on an annualized basis. At present, utilities are using above-ground
feed stocks, and that is what is presumably keeping the uranium
price from going through the roof. The interesting thing is that
above ground inventories are approaching a critical level, near 18 month levels.
The catch is that it apparently takes 12 to 18 months to process uranium ore into actual nuclear fuel, and so utilities can't afford
to play games with their supply and they need to be ahead of their
current needs by at least 18 months.
When that critical period will be reached is uncertain. A lot of the
purchases are being made privately on a contractual basis, well above market,
spot prices, and of course, this doesn't immediately affect the spot price. When (and if) the utilities start hitting the spot market for
supply, will determine the next big move in the uranium stocks.
I personally watch Cameco, which of course is the "blue chip" in this
business. You can also watch the spot price by checking a web site
uxc.com which gives the spot price
once a week. These will provide clues when the next big move
begins.
Besides SMR, there are other significant players, but they are relatively few in number, and so this sector is easy to follow.
Cheers
Dan |
