WSJ -- Uranium Tumbles On Japan Crisis ..........................................................
MARCH 17, 2011
COMMODITIES
Uranium Tumbles On Japan Crisis
By CAROLYN CUI
The most volatile market since the Japanese earthquake isn't Japanese or U.S. stocks. It is uranium, which until Friday was a little-noticed pocket of the commodities markets.
Trading in uranium is often sporadic, with just a few dozen transactions taking place each month, and trading on the spot market totaling about $2.5 billion last year.
But the earthquake and tsunami in Japan, which have crippled a key nuclear plant and raised questions about the future of the nuclear-power industry, has changed all thatat least for now. Trading has soared as some hedge funds and banks unload their positions, traders said.
Almost three million pounds of uranium have changed hands in the spot market for the metal so far this week, five times more than the average volume, brokers said.
The result is that after an 80% run-up over the past eight months, uranium prices have tumbled. They reached a three-year high of $73 a pound in February, but dropped $13 earlier this week and fell to $49.25 on Wednesday, according to Ux Consulting Co.
Michael Goldenberg, director of nuclear fuels at Evolution Markets, a commodity broker, said the past few days have been "the busiest days" he has had since he started brokering uranium trades three years ago.
The flurry of activity in the uranium market reflects the divided thinking among market participants toward the future of nuclear power. Explosions and radiation leaks in Japan have worried some traders, who are dumping their uranium holdings amid fears that the Japanese crisis could stall expansion of the world's nuclear programs.
At the same time, some utilities and even producers have stepped in to buy the metal in the belief that the demand for more nuclear plants will remain. A total of 65 nuclear units are under construction, mostly in China and Russia, according to the Nuclear Energy Institute.
Utilities haven't been among the big sellers in recent days, said Jeff Faul, chief executive of Nukem, Inc., a trader of physical uranium. Mr. Faul said Nukem, of Danbury, Conn., hasn't made any changes to its positions.
Most of the uranium traded in the physical market is in the form of uranium oxide concentrate, which is several steps away from being used as nuclear fuel. It isn't very radioactive and buyers often store it at one of the four major uranium-storage facilities around the world.
After utilities buy uranium on the spot market, these facilities convert the oxide into a gas form of pure uranium, called uranium hexafluoride.
The gas, which is radioactive, is then enriched to become nuclear fuel. It is then transported to fabrication centers to convert into a pellet, which is put into a fuel rod that goes into a nuclear reactor.
Robert Mitchell, who manages the $36 million Green Energy Metals Funds, says uranium represents "a big position" of the fund, which owns both physical uranium and uranium-related stocks.
Though it has been a "tough time," Mr. Mitchell hasn't sold any of his uranium holdings. "No one knows how this movie is going to play out in Japan, but I think eventually rational thought will prevail," he said.
Despite the bearish news in recent days, traders note that more than 400 reactors are still operating, consuming about 180 million pounds of uranium a year. The Japanese crisis prompted a drop of about 3% of the total uranium consumption. Nuclear power accounts for 14% of global electricity output, the Nuclear Energy Institute said.
"The world is not going to stop burning uranium tomorrow," said Kevin Smith, director of uranium trading at Traxys Group, a New York-based physical trader and market maker of uranium.
Uranium Participation Corp., a $680-million Canada-listed fund that is invested in physical uranium, has lost about 26% of its market capitalization in recent days.
"UPC will continue to hold," said Ron Hochstein, president of Denison Mines Inc., which runs the fund.
"It's just a short-term impact. The fundamentals for the market are still very strong," he said.
Write to Carolyn Cui at carolyn.cui@wsj.com
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