Uranium drop $10 to $120

http://www.uxc.com/

UCX drops their price indicator by $10 to $120.

Tradetech (for now) keeps theirs at $129.

With the upcoming "forced sale" by the EOD, this looks to become a downtrend. It will be interesting to see how the explorers react to this.

OK, so we now have a declining uranium price.

The rise of the uranium prices was in a thin market, partly (big part?) driven by (hedge) funds buying.

Now we have the situation where the DOE has to sell a lot of uranium. At the same time the fund industry is suffering from the CDO fall-out. Will they want to buy? (also given a falling price!)
I think not.

Thus that leaves the utilities. And to restrict this further, I do not expect the DOE to accept bids from Iran or N-Korea. Probably US utilities only. That makes the market smaller still.

The US utilities are (waterfell, please help out here) not in a hurry to buy more uranium. I understand that they still have plenty of stock. I simply cannot see them buying uranium at $120. $50, yes, possibly even $60 or $70, but no more.
That leaves us with the distinct possibility that we will be facing a drop in uranium of maybe $50 or $60 in the middle of august.

The middle of august is also the middle of the weak season in mining stocks.

We are thus looking at a potential short term disaster in uranium stocks.

I will not leave out these positive aspects:
The correction in uranium stocks has probably run to completion already. Thus lessening the potential for a drop.
Also, there have been signals that there is heavy short selling in uranium companies. These shorts will want to cover at some point. This too reduces possible downside.

That said, its up to each of us to decide if we want to prepare for a possible buying opportunity or not. Long term, I see no reason to sell now, but you would need to "steel" yourself against a dip.

Rien

I wonder why the DOE suddenly sells uranium. This isn't done without a particular reason.

My 2 cts here

Contrary to the widespread belief that the commodity uranium represents a neglectable cost in the whole nuclear production of energy, the fuel takes at the present long term price of $ 95 a ton, about 13 % of the total cost (commodity alone = 52 % of 26 %). You can find that information on page 38 of the following recent report

http://www.keystone.org/spp/documents/FinalReport_NJFF6_12_2007(1).pdf

With most energy prices at a rather high level and with more than desirable stress in the housing market, the last we need is higher prices for electricity due to higher fuel costs for nuclear facilities. If the government has the possibility to offer some relief then they will.

It's possible that the utilities still have sufficient stockpiles of fuel and they borrow and lend their stocks to each other (also Uranium Participation Co acknowledged to have lend 500,000 XX to utilities), but I sense that the borrowers will have to return these stocks in a rather short period of time. In this market of restricted supplies (Cigar Lake, ...) and a high spot price the DOE can be some seller of last resort for some utilities. If not these utilities will have to purchase Ux on the spot market and pay skyhigh prices to the hawks.

The short position in Cameco isn't recent news. As you can see in the short position reports the stock has been shorted for quite some time.

http://www.tsx.com/en/news_events/news_archives/toronto_stock_exchange_archives/short_position_reports.html

veg.

Good point Veg. It is IMO entirely possible that the DOE has taken a look at the market and decided that an amount of 200 MTU would bring prices down to an acceptable level again. It is also possible that they want to bail out someone.

I have not seen in the press release that they are forced to take the highest bid! Politics will probably play their part.