The uranium spot price is now at a six-month low…
This week, Ux Consulting left its price indicator unchanged at $90 a pound, however, TradeTech, which also sets a weekly spot price, cut its indicator by $10 a pound to $85 per pound.
Using TradeTech’s prices, this represents a 38% decline from its $130 peak in June. I believe that this represents a standard technical correction in the long-term bull market. The fundamentals of the industry are sound and fundamental factors tend to reassert themselves.
This is yet another buy opportunity that the recent market rout has uncovered.
Steer clear of junior explorers
The correction took all the wind out of the sails of uranium juniors – but I have been advising readers to steer clear of the junior exploration sector anyway, but it looks like the producers are now good value once again. I still think that the explorers offer too much risk.
Treva Klingbiel, editor of uranium pricing group TradeTech’s weekly bulletin, recently noted that that global demand between 2008 and 2013 was forecast at 1.1 billion pounds of U3O8 equivalent, with current planned production falling short by around 200 million pounds.
It was no bad thing that the spot price of uranium has fallen. It had got too far ahead of itself – and uranium buyers knew this. Utility groups will not pay over the odds if they can help it. The major correction in uranium stocks has now occurred.
Uranium supply will continue to be less than demand for many years to come and speculators are also going to keep the market tight.
Hedge funds and other speculators have been entering the market and Australia’s Macquaire Bank has estimated that roughly 8,000-10,000 tonnes of uranium equivalent are being held by the market. This should make price rises something of a self-fulfilling prophecy.
For more on the latest developments in the uranium sector, see issue 350 of MoneyWeek, out on Friday. If you’re not a subscriber already, click here to sign up for a free three-week trial.
So, now’s time to top up your holdings of uranium producers – the correction is over. I remain positive on the outlook for uranium prices underpinned by strong long-term demand growth and underinvestment in new supply.
Downside is limited
However, I do not expect a recovery in the uranium price for a number of months. Market sentiment is low and uranium futures on Nymex for January 2008 settlement are around the current spot price. The share prices of producers are unlikely to rapidly jump again in the manner seen in the earlier part of this year, but I feel certain that the downsides from here is limited.
Shares should be bought for the long term. The producers appear to be a good long-term investment at this level and it’s time to re-enter the sector.
By Garry White for his ‘Garry Writes’ newsletter. To find out more about his monthly newsletter, Outstanding Investments, which expands on his views and makes specific recommendations in the resource, infrastructure and biotech sectors, click here: Outstanding Investments
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