Uranium Exploration (U3O8)

[fazoolius]

Strong commodities
Lower spot prices in uranium shouldn't cause concern: industry specialist
Murray Lyons, The StarPhoenix
Published: Friday, August 24, 2007

Little should be read into a reported drop in uranium spot prices this week, one of Canada's best-known observers of commodity prices says.

Patricia Mohr, Scotiabank's vice-president of economics and a commodity market specialist, says the spot price is not that meaningful to producers of uranium yellowcake as traditionally, there has not been much of a spot market in the summer months for uranium.

"In the summer, the market really dies down and it does so because the utilities who are obviously the major buyers don't usually buy much over the summer," she said.

In the past two months, uranium prices on the spot market have tumbled from a peak of $136 US in mid-June to $90 earlier this week. As well, Mohr points out the U.S. Department of Energy has put out for bid a supply of UF6, a form of uranium that has been already been through the first stage of chemical processing.

"For the most part, the actual sellers are not mining companies," said Mohr, the author of the monthly Scotiabank Commodity Price Index. She points out that companies such as USEC, currently the only firm in the United States enriching uranium, sells uranium yellowcake from government inventories or from converted Russian nuclear weapons into the spot market.

Mohr says what's more important is what producers of uranium, such as Saskatoon-based Cameco Corp., charge utilities as a base price in long-term contracts. And that price has held steady at $95 US a pound recently, she points out.

"Contracts can range anywhere from delivery in a year's time to 15 years," she explained. "The contract prices are still at $95 US a pound. That is the base price.

"When a utility takes delivery, let's say, in two years time, about 20 to 40 per cent of the $95 is subject to escalation by an inflation indicator. The net effect is that the actual price is going to be higher than $95 on delivery."

In her report, Mohr notes the spot price of uranium is falling despite the fact it is now predicted uranium output from primary mines will come in globally at 112.1 million pounds of yellowcake in 2007, down from earlier estimates of 117 million pounds. Besides technical delays at mines in Africa, output is down at both Rabbit Lake and McClean Lake in Saskatchewan this year.

POTASH RISES

Meanwhile, the monthly Scotiabank index continues to track the incredible rise in overseas potash markets. In mid-July, the price for a Vancouver shipment was $202.50 US a tonne, a price that includes ocean freight.

By early October, it is expected Canpotex, the overseas selling agency for Saskatchewan potash, will sell potash into Malaysia and Indonesia at $330 US a tonne, a price already being achieved by Russian sellers.

"That, I am told, is just a spectacular level," Mohr said.

She says strong demand for biofuel around the world is causing palm oil producers in the two Asian countries to pour on the potash in addition to fuelling Brazilian sugar cane production for ethanol. The Scotiabank economist says she doesn't see potash prices hitting a plateau for the rest of the year.

"For sales into places like Brazil, Malaysia, Indonesia, China and Vietnam, you have various contracts kick in at various times of the year," she said. "So the average price at the Port of Vancouver is going to continue to climb for the balance of the year."