Uranium Demand to Push Uranium Stocks Share Prices Higher?

One of the great claims amongst uranium share or stake holders is that the demand for Uranium far outstrips current and future supply levels. If this is the case, then why have uranium share prices and uranium spot prices dropped over the course of the past year?

This is a valid question with a pretty simple answer. Yes, Uranium demand outstrips supply. With that said, how does the market set the price for Uranium?

The current mechanism for Uranium’s value is the Spot Price market. What is the spot price and is it really all important for subsequent uranium producing companies share prices?

The spot price is a price that is calculated by looking at the aggregate quantity and price for a particular week’s uranium sales. This establishes what is known as the spot price. To be technical the spot price is the accepted average price per LB of Uranium Oxide (U308).

Proponents of the Spot Price claim that this is the only price that really matters. However others question whether things are really that simple.

For those that see the price of Uranium being a little more complex, the typical argument go something like this: While it is hard to argue the fact that a portion of U308 lots are sold at the spot price, the overall volume involved in these trades at the spot price is relatively low when cross referenced with the uranium demands and purchases of the planets nuclear reactors.

The majority of U308 pricing is set in complex and large negotiated contracts between uranium producers and the management teams of the nuclear reactors.

A few real world examples of these uranium producers would be large cap stocks such as Cameco (Ticker symbol CCJ) and Rio Tinto (which trades under the ticker RTP). Both of these companies and the supplied tickers trade on the Dow Jones Industrial Average.

Back in 2006 NYMEX research department vice president Bradford Leach went over some of the above assertions when he made the comments pertaining to the what we’ve already covered, admitting that the supply of uranium available at the spot market price was indeed an extremely small amount.

Some point to uranium spot price levels of 2006 and 2007. During this period the spot price rose 47 weeks in a row in pretty much a straight line fashion. But uranium producers share prices did not rise in on a simliar percentage basis. Recent market volatility has pushed the spot price below $50 per LB of U308, and while this has continued to drop share prices have in-fact risen in the past month.

It may be safe to postulate that there is no real definitive answer to the question of uranium spot price as a price indicator for share prices. Most commodity based stocks have some degree of variance between the movement of the commodities price itself and share prices for companies that deal in said commodity. The most relevant example in recent memory is that of crude oil futures.

While price differences are a given, it can be difficult to throw aside notions that uranium sport prices have little to no effect on producers share prices. With any stock, investors have to continue completing diligent research, especially in today's up and down market. The take away, if any, is that while spot prices aren't completely in tune with share prices they can still be used as a leading factor for assessing the current demand for uranium throughout the world markets.