FIU 12.880 +0.020 +0.16 315,565 T
Uranium future Info....
Prices could hit $500 a pound in the blink of an eye
Uranium company stocks rallied this week in advance of the off exchange uranium futures trading on the New York Mercantile Exchange (NYMEX) slated to begin next week.
The NYMEX will list a uranium futures contract on Monday, May 7, as the energy and metals exchange looks to capitalize on surging interest in the nuclear fuel.
Whether the launch of futures contracts will be an advantage or disadvantage to the uranium market depend on who you ask.
The futures contract provides nuclear power plants with a vehicle to hedge against rising prices, which have surged more than tenfold in the past four years as commercial stockpiles dwindle and more plants are built. It would also provide a forum to bet directly on gains and falls in the price of uranium, rather than speculating on the fortunes of miners
The new NYMEX futures market will involve financially settled contracts that are separate from the physical uranium market. This separation between the financial and physical markets has led to skepticism among those with experience in the uranium market.
"They don't see how such a market could take hold, given the lack of the basic elements for such a market to evolve -- a liquid spot market and the absence of a linkage to the physical market for the commodity," TradeTech CEO Gene Clark explained in an interview with Dow Jones MarketWatch.
Linkage to the physical market is "nearly universally the case in other futures markets," he added. And, "with the NYMEX futures market being purely a financial instrument, it runs the danger of diverging significantly from the physical market."
"Futures trading is where speculators are going to get involved in uranium with both hands. Uranium futures could put us at $500 per pound in the blink of an eye, because they'll give hedge funds a way to trade in and out of uranium easily," says Sean Brodrick, editor of Red Hot Resources.
He cautions spot prices are unlikely to increase overnight.
"Traders and speculators won't trust uranium futures at first. They'll be as illiquid as granite. But after six months ... a year ... however long it takes ... once they get going, we could see some altitude very quickly. Because once you give hedge funds a way to trade in and out of uranium easily, then it's time to strap on your safety belts, because we could see the wildest ride of our lifetimes."
For those investing in uranium producers, there is nothing more we'd like to see than the prices to continue to trend higher or 'spike' higher," says Kevin Bambrough, a market strategist at Sprott Asset Management.
Brambrough predicts the futures contracts will be a good thing overall and will allow for a more stable and liquid market for producers and consumers to better manage their businesses and hedge risks, as well as allow the participation of a wider spectrum of investors"
According to Investor Daily, "These futures will change the whole game by providing a way for miners, enrichers, and users to hedge their bets."
"At first, the futures could cause some "uranium pure-play stocks" to dip slightly as Wall Street realizes there's a new kid on the block. One such 'pure play' is the Uranium Participation Corporation (TSX: T.U, BullBoards), a holding company for actual uranium managed by Denison Mines (TSX: T.DML, BullBoards).
Shares of the Uranium Participation Corporation dropped from more than $18 to the current $16 on the news of the upcoming NYMEX futures. And, when the futures start trading next week, there could still be a little more downside left."
Historically, the introduction of a new contract has usually meant an intermediate high in prices. But since this is non-directional, it won't affect me. If you're long uranium or uranium stocks, though, we could be in for a rough patch as this is a reliable contrarian indicator," says the Trader.
"The other dark cloud on the horizon is that according to inflation-adjusted prices, we are almost at the previous high (~$115/lb) last seen in the late 1970's. After a parabolic move up within a few short years, I won't blame anyone for being nervous to see prices at previous resistance levels."
What almost everyone agrees on is pricing transparency is long overdue.
"It's about giving transparency to a very illiquid market," said Kevin Bambrough, a market strategist at Sprott Asset Management.
Until now, determining the spot price was shrouded in secrecy. It is evaluated independently by two companies, TradeTech and UxC, reputedly on the basis of their insider knowledge of pending deals and existing bids and offers that are being considered (a process, apparently, taking at least a week). Both companies evaluate the price weekly, but then send it only to their subscribers, publishing only the new values on their Web sites three days later.
Recently, the spot price has been determined largely by the results of the regular sealed-bid auctions for the small amount of 100,000 lbs by a tiny Texas producer, Mestena Corp. However, most actual sales agreements are for very long-term delivery (up to 10 years) and do not use this price.
"The experience this decade has clearly indicated that the uranium market would benefit from additional price transparency," says Jeff Combs, president of UxC Consulting.
"NYMEX uranium futures will now make speculating in uranium fast and efficient," says Brodrick and the price of uranium could benefit substantially from today's levels with this new flow of capital."
The NYMEX futures market potentially sets the stage for an interesting battle between traditional uranium market participants and a new set of players. The traditional players have no interest in market transparency and liquidity. In fact, transparency is generally limited within the uranium market since it has traditionally been traded only between end users, such as electric utility fuel managers and uranium producers, according to Clark.
It will be financially-settled contracts and there are no restrictions.
Traders won't take possession of the commodity, but they can take title of it and get some exposure to its price.
Private ownership of uranium has been legal in the USA only for the past 40 years, and physically possessing it requires a license from the various regulatory bodies.
Facts on NYMEX futures trading:
o U3O8 (yellowcake) is concentrated uranium oxide produced from uranium ore and is the most actively traded uranium-related commodity. Its primary use is as fuel for nuclear reactors.
o NYMEX UxC Uranium U3O8 futures will be launched at 6:00 pm May 6, 2007 (Sunday) for the trade date of May 7, 2007 (Monday).
o Contract symbol will be UX
o Contract size is 250 pounds of uranium U3O8 (currently spot price: $113/lb.)
o Minimum tick size is five cents
o It will be a financially settled contract with each month settling on the corresponding spot month-end U3O8 price published by The Ux Consulting Company.
o Trading hours are 6:00 PM through 5:15 PM, New York time, Sunday thru Friday, with a 45-minute break each day between 5:15 PM and 6:00 PM.
o Initially, 36 consecutive months will be listed. The first listed month will be June 2007.
U3O8.biz is a leading provider of business news, financial information and analytical tools on the uranium market.
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