By Rudi Filapek-Vandyck
A recent sector report by Canadian stockbrokers Haywood Securities has revealed that price charts for many international uranium stocks carry the so-called "Cross of Death". This is when a shorter term trendline moves below the longer term trendline and stays beneath it.
From a technical-market momentum point of view, such occurrence indicates the underlying trend has now become negative (bearish), which was probably a give-away by the name widely used to describe the phenomenon.
FNArena subscribers can view the price chart for Paladin Energy ((PDN)) in Stock Analysis on the website. It clearly shows how the 60 day moving average is now firmly below the 200 day moving average – and has been ever since both crossed paths in late December.
A similar event took place for Rio Tinto ((RIO)) owned Energy Resources of Australia ((ERA)) – only a little bit later; in mid-January.
Two Death Crosses on price charts for Australia's two leading producers of uranium. What does this tell investors?
Probably that, overall, things are not exactly looking too rosy for the industry, to say the least. Note that not all price charts mentioned in the Haywood Securities report show a Cross of Death, but many do, including the price chart for Uranium Participation Corp, a leading investor in the sector listed on the Toronto Stock Exchange.
Spot prices for U3O8 managed to climb back above US$50/lb in June last year, but they have been sliding back ever since.
Last week, both spot prices and long term price benchmarks for the uranium industry, as set by two independent, leading sector consultants, both fell back in line with each other – it had been a while. Unfortunately, the convergence emerged from another week of falling prices.
Both Ux Consulting and TradeTech lowered their spot prices to US$41.75/lb last week. More remarkably, however, is that long term price benchmarks at both consultants are now also back at similar levels again.
Twelve weeks ago UXC lowered its long term price benchmark by US$2 to US$62/lb. Since then, the difference with the equivalent long term price benchmark at TradeTech was US$2. Last week UXC again lowered by US$2. Both long term price benchmarks are now sitting at US$60/lb.
On Friday, TradeTech sliced off another full US dollar from its weekly spot price, now reading US$40.75/lb. The consultant notes market demand remains discretionary. With sellers prepared to lower their prices to get deals done, surely it now has to be feared spot uranium prices this year might sink even lower than they did in 2009.
Last year, spot uranium bottomed on April 6, at US$40/lb – only US75c below the latest update provided by TradeTech.
It is probable continued willingness by sellers to turn ever more aggressive when trying to sell their product is due to the announced intention of the US Department of Energy to sell 200 tonnes uranium in the form of UF6. This is the second lot of material offered by DOE under its program to sell excess uranium inventories in order to fund clean-up efforts at the Portsmouth, Ohio enrichment facility.
The first DOE sale was successfully concluded in December.
In its monthly update, TradeTech reports February saw the spot U3O8 price decline by US$1.75/lb. This was due to the fact that sellers gradually accepted lower and lower prices as the month progressed.
In the end, 15 deals were successfully concluded on spot market terms, good for a total volume of 2.8m pounds in U3O8 equivalent to change ownership during the month.
Another remarkable event during the month was that Uranium Investment Corp, a proposed new investment vehicle for the industry, deferred its official launch due to weak economic conditions.
Note also that political turmoil in Niger, an important producer of uranium, had no effect on the market whatsoever.
TradeTech also has a Mid-Term U3O8 Price Indicator which remained unchanged in February from the previous month at US$50.00 per pound U3O8.
Spot U3O8 prices peaked in 2007 at US$136 (UxC) and US$138 (TradeTech) respectively.
