Desjardins: Uranium Prices Should Stabilize at $60

Includes: CCJ, EMU, NEM, URZ
by: FP Trading Desk

Uranium prices have been in total free fall over the last 12 months, dropping from a record high of $135 a pound to $60 a pound. So is the bleeding over?

Desjardins Securities analysts John Redstone and John Hughes think it is. They're betting that prices will now settle down and average $60 in the long term, because supply and demand are finally moving into balance.

In a note to clients the analysts wrote:

We expect supply growth to match our most aggressive demand growth profile, keeping total inventories well above adequate levels.

However, they noted that there could still be plenty of volatility, as investment funds can hold up to 10,000 metric tonnes [KMT] of uranium, and any change in that "long" position could lead to turmoil in the spot market.

In the shorter term, they expect that buying sentiment in the spot market could continue to be weak, as about 40% of uranium mine production capacity under development is due on-stream this year. At the same time, the global increase in demand is expected to be steady over the next five years, but not spectacular.

Beyond that, the analysts noted that it is possible demand could accelerate as a new generation of nuclear power plants come online. However, they're still a little dubious about the so-called "nuclear renaissance" given that it is becoming more difficult to finance nuclear plants and there is a shortage of skilled people to run them. New uranium mine production could also offset much of the growth in demand.