For keen watchers of the uranium price like me, it’s been difficult to find out what you need to know. But things are changing from Monday…

One of the major problems with uranium has been that its pricing has not been particularly transparent. We mere mortals who are not part of the uranium industry price-setting cartel had to wait for the Ux Consulting company to be bothered to put the uranium price figures on its website to have any indication of the current price.

Even then, the price setting only happened on a weekly basis. This is hardly impressive in the 21st century where instant information is expected by all.

However, things are different now. The uranium industry moves into the modern era from Monday… And about time too…

On 7 May, the New York Mercantile Exchange (NYMEX) will introduce uranium futures on its electronic platforms. The exchange has partnered with Ux Consulting to provide marketing and education for financially-settled contracts to provide price benchmarking.

This means that you will always be able to find a price for uranium. It’s truly revolutionary. The two organisations even aim to introduce options at a later date.

Title, not delivery

Of course, the reason why the uranium futures have not been seen before is that buying a future carries the implication that you will take delivery of the underlying commodity. When this commodity is uranium then you don’t want this to happen – for obvious reasons. However, this obstacle has been overcome; traders won't take possession of the actual commodity, but they will take title of it.

This contract is therefore different to many other futures contracts. Another major difference, apart from the absence of a linkage to the physical market for the commodity, is the lack of a liquid spot market.

The new contract will be called U3O8 and its contract code will be UX. The contract will be listed for 36 consecutive months. It will be 250lb in size with a minimum price fluctuation of 5 cents per pound. The contract will be settled on the spot month-end U3O8 price published by Ux Consulting.

It is fully expected that the futures will be illiquid at first, but this contract should increase interest - and especially volatility. The uranium price has not moved lower for 42 months – but I expect the introduction of a futures market will alter this. You should expect to see significant swings in the price of the contract going forward.

However, I believe the introduction of the future is ultimately bullish for the uranium price. All we need now is a uranium exchange traded fund – that really would be exciting - but I don’t expect that for some time to come.

The main thing that the introduction of a futures market will bring about is price transparency and a forward price curve.

This will be of particular benefit to power generators who have been having a torrid time with their financial planning because the uranium price has been set on a market-price basis. Budgeting and planning has therefore been a nightmare for end users. Hedge funds are also expected to play the uranium future game, but I would advise private investors to be cautious.

Last week, Dow Jones Marketwatch instigated a survey of 400 private investors. The responses indicated that 97.5% of these investors had a holding in at least one uranium stock, but less than 7% of respondents said they intended to trade the physical uranium futures. The respondents were cautious – and you should be too. I am just happy to have a transparent pricing mechanism – at last! P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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