In the face of Asian competition and possible supply shocks to the uranium market, UxC president Jeff Combs urges U.S. utilities to “support the expansion of production in the United States.” He believes there’s a good chance for $50/pound uranium this year. “Any shock to supply could send prices much, much higher.”

StockInterview: How would you sum up the uranium market right now?

Jeff Combs: There’s a very tight supply/demand situation that exists now for deliveries over the next several years. If you were going out today to buy uranium for 2007, 2008, and 2009, there’s not that much available supply. The supply/demand balance is very tight, and I think that’s going to be reflected in prices continuing to rise for a while as utilities seek to fill demand for those delivery years. Since most contracting in uranium is done on a term basis, you’re always looking out several years. By the time you reach 2009, for example, you’re looking to fill needs in 2012 and beyond. By that time, supply might have responded sufficiently, or even “over-responded.” Of course, whether or not the supply/demand balance is tighter then depends on how nuclear power expansion is progressing at that point and what happens with respect to the HEU deal. But, in the meantime, production will have had more time to react to higher prices, and this could alleviate some of the supply/demand pressures.

StockInterview: How are escalating market-related contracts impacting the uranium price?

Jeff Combs: It’s pretty much a sellers’ market right now. You have escalating floor prices that are maybe not too much lower than the current spot price. If you have ceiling prices, they’ll be much higher than the current price, and those will also escalate. In some cases, you don’t even have ceiling prices. In rare cases, you don’t have either ceiling or floor prices. Most producers are looking to sign market-related contracts and not fix the price even on an escalated basis in the future, although they would want floor protection. To a large extent, the utilities don’t have too much choice in the matter except to wait and hope that the competitive landscape changes in the future. However, in many cases they need to procure uranium now and can’t afford to wait. Thus, they must accept what is being offered.

StockInterview: Do you continue to see a speculative frenzy in the market?

Jeff Combs: There’s still some speculative activity in the market, but I wouldn’t call it so much a frenzy. The importance of this speculative buying has been somewhat over-blown. Total hedge fund/investor volume to date is about 11 million pounds. This buying started towards the end of 2004. The bulk of it was during 2005, and it has continued into this year. It will be much less over the first part of this year versus the first part of 2005; about a half a million pounds so far this year versus 5.5 million pounds through May of 2005. There is probably too much emphasis put on the role of hedge funds or investment funds in the market. If you look at the market, the price – especially the long term contract prices – has been leading the spot price up. The speculators really aren’t involved in that part of the market. Over the same time the hedge funds/investor funds were buying, you’ve probably had a third of a billion pounds transacted under long-term contracts. If you go forward several years from now, you see a very tight supply/demand situation in the market. If you wanted a pure base-escalated contract, the base price for this might be close to $50 today, a good bit higher than the spot price and about a third or so higher than the long-term price at the beginning of the year.

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