The supply and demand fundamentals for Uranium have definitely changed from this time last year but demand growth is still expected to be high for the next decade and beyond.
CIBC analysts expect the U3O8 prices would move to about $70 a pound to bring on more production. The U3O8 prices continue to trend relatively flat, however the brokerage believes a bottom at about $50 a pound has been reached.
Over the coming year, more utilities, particularly from China, are expected to enter into the market and begin signing long-term contracts or acquiring on the spot market given the spread between spot and long-term prices.
In addition, the stagnant demand from western economies is expected to be offset by strong demand from emerging economies such as China as their dependence on fossil fuels is most prevalent and economic growth will simply exacerbate environmental issues with the dependence in the long term.
"We believe that western demand for power and uranium will remain relatively stable in 2012 and that large increases in prices and volumes will likely not be seen until Chinese utilities begin to enter into the market in earnest," CIBC analyst Ian Parkinson wrote in a note to clients.
Given delays in the development of nuclear reactors in China due to safety assessments after the Fukushima incident in Japan, Chinese utilities are not likely feeling rushed to reenter the market. That said, initial cores required for reactor start-up, which require nearly three times as much uranium as steady state operations, will need to be sourced for many of the 26 reactors under construction.
"We believe these new reactors will need long-term supply and utilities will be looking for it soon," analyst Ian Parkinson wrote in a note to clients.
Parkinson added that his long-term outlook for U3O8 prices remains unchanged as he believes the price required to stimulate new production to meet rising demand is substantially higher than current spot prices. Operating and capital costs at new primary mines will be substantially higher than the current cost curve leading to the need for higher prices.