If low uranium prices persist, investors may turn tail from the industry jeopardizing important future exploration and development, says RBC Capital analyst Adam Schatzker.
In our opinion, the current spot market price level will likely have far reaching implications if it remains at such low levels for too long, most importantly, in our view, will be disinterested equity markets that might cease funding uranium exploration and development.
We believe that the absence of equity market participation in the uranium industry would constrain the ability of uranium supply to meet the growing demand, which, in turn, could threaten the ability of global utilities' new reactor build programs.
Adam Schatzker's comments were in reaction to recent trade data that has spot prices for uranium ranging between $57 to $59. Mr. Schatzker said he believes the demand side of the spot market continues to be the weak link, but noted buyers seem content with buying at ever decreasing prices.
Surprisingly, spot volumes are on track to reach the 30 million pound mark for 2008 - a level not seen since 2006 - and may do most of that volume at falling prices.
Over at Canaccord Adams, analyst Scott Finlay said lower-than-expected prices in Q1 and Q2 have wreaked havoc on his U308 forecasts, forcing him to reduce price assumptions through 2011. Still, Mr. Finlay's new $69 price assumption for 2008 remains 16% higher than the current spot price and his 2009 forecast of $80 is 35% higher.
In the absence of a supply shock, our base case foresees a supply/demand balance over the next two years and a return to surplus in 2011.
The analyst added that uranium prices will begin strengthening following the quiet summer period and into 2009 on the back of new buying from utilities.