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Uranium miners have offered a very consistent message to investors over the past couple of years: The short-term outlook is bad, but don’t worry, a lot more uranium is going to be needed down the road. RBC Capital Markets Analysts agree. Only they think it will be a much longer road than most.
Analysts Fraser Phillips and Patrick Morton on Thursday sent shudders through the industry as they took an axe to their uranium price forecasts. They cut their 2014 spot price forecast to US$31.50 a pound, down from US$45. And it got worse from there. The 2015 target was cut to US$40 (from US$60), and targets for the 2016 to 2018 period fell to just US$40-US$45 from US$75-US$80.
Not surprisingly, shares of every significant uranium company (including Cameco Corp., Paladin Energy Ltd. and Denison Mines Corp.) tumbled on Thursday.
The analysts believe the uranium market is going to be in surplus until 2021, which is far longer than most insiders expect. They blame continuing oversupply in the market.
“Active annual supply exceeds demand by a significant margin, and on top of that, significant excess inventories have been and continue to be accumulated post the Fukushima disaster, particularly in Japan,” they said in a note.
It is no secret the uranium market is under pressure. The sector is still reeling from the Fukushima disaster in 2011, and approvals for Japanese reactor restarts are taking longer than expected. The spot uranium price recently fell below US$30 a pound for the first time since 2005.
Uranium miners claim the supply surplus should disappear in the coming years as nuclear power demand increases. There are currently 73 reactors under construction around the world, according to the World Nuclear Association, including 29 in China alone.
The miners also point out that a Russian agreement to supply commercial uranium from dismantled nuclear reactors ended in December. That removed more than 20 million pounds of annual supply from a market that only produces about 140 million pounds a year, helping to bring it into balance.
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