Uranium can't escape recession fears
Publisher: U3O8.biz
Author: Luke Brocki
Uranium's rock star glow seemed destined to fade this week, as
industry indicator Tradetech dropped the metal's spot price $5 to $84
a pound U3O8, but Australia's strategic dance with India provided a
reminder that short-term market volatility has little effect on
long-term trade relations.
Don't get me wrong. A $5-drop is big. Nearly six per cent. But it was
fuelled by a combination of factors that, judging by the market's
reaction, hastily blurred into a panicky emergency siren.
The factors: an aggressive seller offered uranium at deeply discounted
prices in an effort to attract buyers, lingering bearish sentiment and
volatility in the uranium market after last year's now historic rise
and fall in spot price and, perhaps most importantly, massive global
selloffs and growing fears of a US recession.
That being said, uranium shares weren't the only ones to take a
beating on blue Monday, which was but a pseudoscientific study of
winter blues until the TSX tumbled 600 points, suffering its largest
single-day drop since 9/11. Commodities were down across the board.
Scratch that. Markets were down across the globe.
Parliament Hill then joined the White House in efforts to entice
consumer spending and hopefully breathe life into a slumping US
economy. The Bank of Canada cut its key rate by 0.25 per cent and its
neighbour to the south slashed its federal funds rate by 0.75 per
cent. Analysts called the strategy a political band aid, but it
stopped the bleeding for the time being.
In Canada, the rally came Wednesday and continued Thursday, with the
big TSX index closing 250 points higher at 12,907. The Resource World
uranium stock index is also clawing its way back up after Tuesday's
fall.
That day, the index dropped 92 points, or nearly eight per cent, to
1,092.03, a low unseen since last fall's massive price correction.
Buoyed by a recovering resource sector, it gained strength through the
week, recovering more than 33 points on Wednesday and 31 points
Thursday to close at 1,157.13.
The single interesting uranium jump on the TSX came from Ur-Energy
Inc., after it released the results of 2007 leach tests at its Lost
Creek project, which showed 84 to 93 per cent recovery. Company
executives were excited at the news, which indicates the deposit
should leach well. Ur-Energy stock gained 35 cents, or 15.6 per cent,
to $2,60.
But what else helped commodities rebound? Good news from China. The
country reported its economy grew by 11.4 per cent last year, its
fastest rate of growth in 13 years.
Keeping that in mind, let's look at the aforementioned dance between
Australia and India. On Tuesday, Australia's Rudd government stomped a
decision by the previous government and told India it would not be
buying Australian uranium unless it signs the nuclear
non-proliferation treaty.
Diplomats tore hair from their heads. After all, Australia is sitting
on gigantic uranium reserves and India is desperately seeking power
for its rapidly expanding economy. Meanwhile, the other Asian tiger
(I'll give you a hint: it's China) forges closer ties with the land
down under. After all, newly minted Prime Minister Kevin Rudd spent
quite a bit of time at Australia's embassy in Beijing and has even
been known to converse in Mandarin from time to time.
Suddenly, Australia's diplomats can't talk about China without
mentioning India in the same sentence. And while the Aussie government
banned uranium exports to India, it has not decided whether to block
India's uranium purchases from other counties.
Then, the UK steps in and backs a proposed India-US nuclear
cooperation deal with all the fixins, including an India-specific
exemption to the Nuclear Suppliers Group guidelines, which could
cripple nuclear exports to the Asian tiger given its failure to sign
the nuclear non-proliferation pact.
India declined to sign the pact because it thought it discriminatory
by allowing a handful of countries to keep their nuclear arsenals. And
in the latest, Australian High Commissioner John McCarthy admitted the
sale of yellowcake to India was a problem given the Rudd government's
new policy, but quickly assured Indian envoys that Canberra has as
much liking and respect for New Delhi as it does for Beijing.
Money talks, people. And uranium is worth a whole lot of money. Forget
about the recent market troubles and follow this story. Let's see what
happens.
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