Commodity Strategist: Uranium May Rise, Resource Says (Update1)

March 30 (Bloomberg) -- Uranium prices, up 13 percent this year, may extend gains because of investor demand and purchases by nuclear power generators to ensure future supplies for their reactors, Resource Capital Research Pty said.

Uranium may climb to $54 a pound this year, John Wilson, an analyst at Resource Capital, said in Sydney. Prices rose to $40.60 a pound yesterday, according to Metal Bulletin. That surpasses the 2006 forecast Resource Capital made in December, when it projected an increase to $50 by June 2007.

``Market pressures are stronger than initially predicted due to investment and restocking activity,'' Wilson said in a report. ``Current sentiment is that the uranium price is likely to continue to increase'' and may reach $58 by June next year.

Uranium, used to generate about 16 percent of the world's electricity, has gained 80 percent in the past year because demand from utilities rose faster than mine production and drew down stockpiles. Higher oil, gas, and coal prices and tighter controls on emissions prompted utilities in China, India, Russia and Finland to build nuclear reactors to meet power demand.

More than $200 billion may be spent on nuclear generators worldwide by 2030, according to the International Energy Agency in Paris.

Investors, keen to profit from the uranium price rally, are keeping supplies low. Adit Capital Management LP, based in Portland, Oregon, has been buying uranium since November 2004, and isn't selling, manager Bob Mitchell said this month.

Nuclear Boom

At the start of the year, there were 441 operating reactors, and another 24 under construction, according to the London-based World Nuclear Association. An extra 41 plants have funding and approvals in place.

That level of demand, and the time taken to start new mines in South Africa and Kazakhstan, will keep supply of the nuclear fuel tight for at least another three years, the association said March 24.

About 60 percent of the world supply comes from mines currently producing about 48,000 tons of uranium a year, Resource Capital's Wilson said. While that may increase to 54,000 tons in the next three to five years, supplies from inventories and re-processed weapons are being drawn down.

``Uranium from these sources is being consumed and is likely to supply less than 25 percent of the market by 2011'' from 40 percent now, he said.

Supply Increase

Some analysts expect higher prices to trigger a surge in supply from mines and push prices lower.

Average uranium prices may peak at $38 a pound next year before falling to $32 in 2008 as new mines come on stream, Victor Lazarovici, an analyst at BMO Nesbitt Burns Inc. in New York, said this month. Uranium averaged $36 in 2005.

Paladin Resources Ltd. plans to start mining its Langer Heinrich deposit in Namibia in September with the first exports in 2007. It will deliver 2.5 million pounds (1,100 tons) of uranium in the following six years after signing its third contract to supply a U.S. utility, Perth-based Paladin said March 24.

Areva SA, the world's biggest maker of nuclear power stations, said March 28 it's still in the bidding for a $8 billion reactor order from China.

The French company is competing with Toshiba Corp.'s Westinghouse Electric Co. to win the contract for four reactors and hasn't ruled out providing nuclear know-how as part of the bid, director Vincent Maurel said March 28.

Winning the order would strengthen the Paris-based company's foothold in a country that may spend $50 billion to quadruple its nuclear capacity by 2020 to help meet surging demand for power.

China has the world's fastest-growing nuclear market in the absence of environmental and safety obstacles that have halted U.S. and European programs.

To contact the reporter on this story: Gavin Evans in Wellington, New Zealand at gavinevans@bloomberg.net

To contact the editor responsible for this story: Reinie Booysen at rbooysen@bloomberg.net