Is it time for a uranium sector rebound?
After theÂ worstÂ 3 month period for uranium miners since the 'great recession' is it finally time for a sector rebound? Last week, China reported their trade surplus expanded to $13.05 billion in MayÂ andÂ strong imports eased fears of a slowdown in the world's second biggest economy. Today,Â data out of China showed inflation accelerated to its fastest level in almost three years, and China'sÂ industrial output grew 13 percent from a year ago. Its central bank, in an effort to curb inflation, later increased the reserve requirement ratio for commercial lenders by 50 basis points.
To some, these actions confirmed that amid efforts to prevent China's economy fromÂ overheating growth was still robust.Â Peter Cardillo, chief market economist at Avalon Partners in New York, saidÂ the data is a sign that perhaps China's economy "can avoid a hard landing, and that's cheering the markets." The DOW is up over 1% today and commodity prices across the board rallied after what has been a six week bull market in pessimism.
According to Stephen Massocca, managing director at Wedbush Morgan in San Francisco, "Investors are very susceptible to any kind of news and since we are very oversold here, we could see the market instantly bounce backÂ if we get anything remotely good."
With global growth affirmed, at least for now,Â some think the biggest price dropÂ of uranium in two years may be ending.Â Â Uranium prices fell from $73Â a pound in January 2011 to a recent low of $55 asÂ governments around the world reviewed nuclear plans following the Japanese tsunami crisis in March. But recently, it wasÂ reportedÂ thatÂ China and India plan atomic power developments that will more than double global production even after Japanâs nuclear disaster. China and India will lead a 46 percent increase in consumptionÂ by the worldâs five biggest atomic-power developers by 2020, according to data compiled by Bloomberg. Morgan Stanley forecasts the price per pound of uraniumÂ will climb to $64 by the end of in 2011. Currently, the uranium spot price is $56.
While uranium is off 23.3% from pre-tsunami highs, uranium stocks are down even more. Cameco (TSX: CCO) reached a high of around $44 per share in early 2011 and now trades at just over $24; a decline of 45.5%. Paladin Energy (TSX: PDN) which hit highs of $5.60 in January and can now be had for $2.67; a 52.3% decrease.
But two yellow cake miners were hit even harder. Denison Mines (TSX: DML) touched a high of $4.40 in February isÂ now trading for under $1.80Â per share; aÂ drop of 59.1%. WhileÂ shares of Uranium One (TSX: UUU) which were trading for just under $7 a share earlier this year are now being traded forÂ $2.85; a 59.3% selloff.