Uranium bottoming as China buys supplies

The nation may purchase about 5,000 metric tons this year, more than twice as much as it consumes, building stockpiles for new reactors, according to Thomas Neff, a physicist and uranium-industry analyst at the Massachusetts Institute of Technology in Cambridge. Prices will jump by about 32 percent next year, the most since 2006, RBC Capital Markets said.

India and China are leading the biggest atomic expansion since the decade after the 1970s oil crisis to cut pollution and power economies growing more than twice as fast as Europe and North America. The boom, combined with slowing supply growth, may benefit Cameco Corp., a co-owner of the world's largest uranium mine, and Areva SA, the largest builder of reactors.

“China's demand is insatiable,” said Dave Dai, an analyst at the Daiwa Institute of Research in Hong Kong. “They will have to take almost whatever is available.”

Uranium will climb to an average US$55 a pound next year as demand erodes supplies, according to Adam Schatzker, a metals analyst at RBC in Toronto. Max Layton, at Macquarie Bank Ltd. in London, forecasts it will climb to US$56.25 next year and US$60 in five years.

Uranium for immediate delivery was at US$41.75 a pound on July 5, according to the Ux Consulting Co. weekly price assessment. Spot trades of uranium oxide totaled 20.9 million pounds this year, about US$873 million in Monday's prices, Roswell, Georgia-based Ux Consulting said.

Uranium has tumbled 69 percent since peaking at US$136 a pound in July 2007 as companies boosted production, according to the firm's data. At least 27 mines in nine countries began operating in the past 10 years, adding as much as 65 million pounds a year to global output, according to Saskatoon, Saskatchewan-based Cameco, part owner of McArthur River mine in Canada, the world's largest deposit of high-grade uranium. Six mines are scheduled to start in 2010.

“The uranium bull market of 2006 and 2007 stimulated the development of new supply, but we do not think it is enough,” Schatzker wrote in a report. “The prevailing uranium price is too low to stimulate sufficient supply to cover future reactor requirements.”

The cost of mining one pound of uranium is about US$31, up from US$26 in 2007, according to Edward Sterck, an analyst at BMO Capital Markets in London.

China's demand for uranium may rise to 20,000 tons a year by 2020, more than a third of the 50,572 tons mined globally last year, as it boosts output to 85 gigawatts, nine times its current capacity, according to the World Nuclear Association. The nation agreed on June 24 to buy more than 10,000 tons over 10 years from Cameco.

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