Expectations that major utilities would pick up their uranium buying to cover their upcoming uncovered requirements in the first quarter of 2016 gave the market the impression that uranium spot prices would be behaving differently than they did. In reality, uranium prices so far this year have failed to impress. Uranium spot prices have fallen from January highs of $34.50 per pound of U3O8 to lingering at $27.50 per pound of U3O8.
Cantor Fitzgerald’s estimated Q1 uranium prices of $38 per pound missed the mark. Instead of continuing to gain after the start of the year, uranium spot prices dropped, averaging $32.77 in Q1. Ever the optimists, the firm maintains that uranium prices are in for a violent move upwards, particularly as additional disruptions to supply continue to increase the anticipated deficit.
Still, given the recent market behavior, Cantor Fitzgerald analyst Rob Chang noted in a quarterly commodity update that “utilities will continue to satisfy their uranium demands in the spot market until the market begins to penalize them for doing so with higher prices.”
However, before utilities start facing higher spot prices, the analyst highlights that above ground uranium inventory needs to be significantly reduced. Unfortunately, understanding the true amount of available uranium supply has proved challenging to market watchers. “The opaque nature of the market is a key issue that is highlighted by the available supply from Russian uranium fuel converters with large amounts of excess enrichment capacity. These entities are processing at minuscule tails assays and selling the excess uranium in to the market.” says Chang.
Although there is an unknown element about the uranium available for purchase by utilities on the spot market, the numbers from primary uranium production from mines is readily available. On the production front, uranium supply has been coming up short when it comes to meeting global demand. This bodes well for the sector when available materials available on the spot market dwindle.
While looking at spot uranium prices paints a bleak picture, investors should not be discouraged. Sure, it’s been years that analysts have been calling for a renaissance in the sector marked by a sharp increase in prices. And while the expectations can feel like a carrot on a string, taunting investors with an unattainable reward, that is not the case. The market fundamentals point to higher prices, and better days for both investors and companies. One must just remember that the road to victory is not always easy.
With the goal of profitable investment in mind, and the understanding that the market volatility is the name of the game, here is a look at the top 10 uranium stocks to watch from Cantor Fitzgerald and their ratings.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.
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