Uranium to Gain on Plants, Merrill Says

Uranium prices may gain as Japan, South Korea, India and the United Kingdom build more nuclear reactors to meet rising energy demand, Merrill Lynch & Co. said.

Uranium for immediate delivery may average $43 a pound this year, Vicky Binns and Daniel Hynes said in a July 12 report. This is 8 percent higher than Merrill’s previous estimate of $40 and compares with last year’s average of $28.

Prices of uranium have risen 56 percent in the past year as record oil prices spurred demand for alternate sources of energy. The number of reactors under construction has risen to 27 from 23 in the past 10 months, and the gap between primary uranium production and global demand keeps widening, Merrill said.

“We believe that the continued push of nuclear power as a key source of the world’s future energy needs will correspond into stronger than expected demand,” Hynes said in an e-mailed reply to questions today.

Prices of uranium, used to generate about 16 percent of the world’s electricity, have jumped fivefold since 2001 to a record $46 a pound, according to prices supplied by Metal Bulletin Plc. Oil has tripled in the same period.

Binns, the global head of mining research, was ranked fifth among Australian metals and mining analysts in a 2005 survey by Business Review Weekly. Hynes, 34, has been covering mining for eight years.

The Sydney-based Resource Capital Research Pty said last month uranium for immediate delivery may reach $54 a pound later this year, and rise to $60 by May 2007.

China, India

China, which has nine reactors at three nuclear facilities, wants to add two nuclear power plants each year. By 2020, nuclear power may generate 4 percent of China’s total power, from less than 2 percent in 2005, Merrill said in November.

India plans to spend $40 billion over the next 16 years to build nuclear plants after the U.S. and other countries end an international embargo on the sale of atomic technology to the world’s second-fastest-growing major economy. India has doubled its nuclear power generation target to 40,000 megawatts by 2020.

About a third of Britain’s existing power plants including 23 nuclear stations fill finish their lives in service in the next two decades, Trade and Industry Secretary Alistair Darling said July 11. Nuclear power will help fill the shortfall.

Each new nuclear reactor needs about 1.6 million pounds of uranium to start production, and about 500,000 pounds for each subsequent year, according to GMP Securities LP.

`Supply Constrained’

Rising demand and reluctance by miners to sign longer-term supply contracts is prompting utilities to buy uranium on the spot market, spurring prices higher, Merrill said.

Cameco Corp., the world’s biggest uranium supplier based in Canada, said in April an accident at its Cigar Lake project in Saskatchewan will delay start-up by six months.

Uranium supplies from Russia’s reprocessing of its nuclear weapons may dry up, stretching global supply further, Merrill’s Hynes said.

“They haven’t got an unlimited supply,” he said. “Their stockpile of weapons is static.”

Power plants haven’t found suppliers for about 40 million pounds of their requirements in 2009, Hynes said.

Investment funds bought 2 million pounds in the first four months, less than half the 5.3 million pounds purchased in the same period a year earlier, Merrill said, citing figures from U.S.-based Ux Consulting Co, LLC.

These investors are unlikely to sell their uranium holdings as supply is expected to lag demand, Merrill said.

“The fundamentals for uranium remain very positive with likely deficits every year even under our conservative analysis,” Merrill said.

Uranium may average $35 by 2011, 25 percent more than the brokerage’s October forecast, the analysts said.

Source: www.bloomberg.com