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permissions Uranium spot prices descend beyond decade low

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    • Jul 5 2016 at 5:49 PM
    • Updated Jul 5 2016 at 7:19 PM
    Uranium spot prices descend beyond decade low
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    The descending uranium price has put global producers under pressure. Glenn Campbell
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    by Tess Ingram
    Uranium spot prices are still likely to stage a rapid recovery on the back of improving demand, industry analysts and executives argue, despite a persistent supply glut driving prices to a largely unanticipated 11-year low.
    Spot prices for uranium oxide, which is used mainly as fuel for nuclear reactors, crept below $US27 ($36) a pound in June for the first time since mid-2005.

    The current levels are lower than when prices were sent spiralling after the Fukushima nuclear disaster.
    After hitting over $US130 a pound in 2007, prices had stabilised to about $US70 a pound at the beginning of 2011 before Fukushima sent them gradually declining to a low of $US28 a pound in May 2014. Prices increased in 2015 but have since slumped about 21 per cent year-to-date.

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    Yet to catch up

    Argonaut analyst Matthew Keane said prices had persisted "a lot lower than a lot of people expected" and forecasts for the timing of an anticipated supply deficit needed to improve prices "keep getting kicked along".
    "We just haven't got the reactors online and even though the Chinese build program is very aggressive, we haven't caught up and really sucked away the inventory yet," Mr Keane said. "The US and Europe are still sitting on adequate stockpiles."

    Argonaut recently lowered its price forecasts and now expects the spot price to average $US30 a pound in the second half of 2016, $US45 in 2017 before escalating to $US65 from 2019.

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    Patersons Securities analyst Simon Tonkin downgraded his price forecasts on Monday, due to the weaker than expected price performance, to $US28 a pound in this calendar year, $US40 in 2017 and $US50 in 2018.
    However, the Department of Industry, Innovation and Science said in its March quarter resources and energy report it expected prices to average $US32 a pound in 2016 but decline further to $US31 in 2017.
    Spot sales forced

    Large uranium producers typically sell most of their output through long-term contracts rather than the spot market, which only makes up about 20 per cent of the whole market.

    However, Mr Tonkin said he believed a number of producers, including locally listed Paladin Energy, would have recently been forced to sell into the spot market to improve dwindling cash positions, which would have negatively impacted prices.

    Analysts largely remain confident the combination of new and restarted nuclear capacity as well as signs of supply constraint will begin to rebalance the market.

    In April, Cameco, one of the world's largest uranium producers, said it would curtail production at some of its North American operations due to the weak market conditions.

    "That is probably one of the more positive catalysts we have seen in a very long time because Cameco has always been very pragmatic and kept going," Mr Keane said.

    Underlying message

    "[Cameco] are largely contracted out to 2018 and now they are saying they are peeling off production. I think there is an underlying message that if end users want contracts beyond 2018 they need to up the price and incentivise it and that is potentially quite a catalyst.

    "Today's surplus is driving tomorrow's deficit so the longer we maintain these lower prices and the less development capital that is put into projects, Australia and otherwise, the more pronounced the deficit will be when it finally arrives."
    Vanessa Guthrie, managing director of West Australian developer Toro Energy, said the uranium hopeful was confident demand was increasing in China and India and reactors would gradually restart in Japan.

    "I think people are holding their breath to some extent for Japan to really start to move back and then I think the long-term fundamentals will kick in."


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