After dropping to a multi-year low of 28 dollars per ton in mid-2014, uranium prices recovered sharply later in the year. However, prices failed to keep momentum and are once again hovering below 40 dollars per ton. But that might not be for long. Uranium prices could gather momentum in 2015, driven by long-term contracts. Utilities, which are the biggest buyers of uranium, typically enter into long-term contracts. These contracts are typically delivered two to four years after an agreement is reached on prices between uranium producers and utilities. Utilities have been mostly absent from the market following the Fukushima disaster. However, the demand from utilities is set to increase. Cameco Corporation noted in a presentation in February that its long-term contracting rebounded from 24 million pounds in 2013 to 82 million pounds last year. This makes it clear that utilities are finally looking to enter into long-term contracts.
It must be noted that the level in 2014 was still well below the Cameco average of 175 million pounds. In fact, Cameco has long-term commitment through 2018 and its average realized prices are higher than market prices. This is why the company is in no hurry to enter into long-term contracts. It is a case of who blinks first. Utilities are waiting for prices to go down further before they enter into long-term contracts. On the other hand, miners like CCJ that have commitment for the next two-three years have no incentive to enter into long-term contracts. It is likely that utilities will blink first. The reason is that many of the utilities will see their long-term contracts end in the year or so. Speaking to Uranium Investing News, David Talbot of Dundee Capital Markets, said many long-term contracts (seven to 10 years) were signed between 2006 and 2007. These contracts are coming to an end, which means that utilities will be looking for steady supply of uranium.
Original URL: https://seekingalpha.com/article/3052176-uranium-prices-are-set-for-gains-in-2015
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