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By: James Finch
Small Quantities of Uranium A rockfall at Cameco Corp’s TradeTech Chief Executive Gene Clark.
StockInterview:
StockInterview: What do you mean by ‘quantity flexibilities’ under long-term contracts? Gene Clark: In the early 1990s, buyers were able to command considerable flexibility in contract delivery quantities. When the spot price rose to a peak of $16.50 per pound U3O8 peak in 1995-96, the level of flexibility declined. After spot prices peaked and fell again, buyers were able to get high annual levels of flexibility in their long-term contracts. This was like getting free buyer’s options. This level of optional quantity was one of the first things to disappear in the long-term offers, at the start of both of the recent price-run-ups. In today’s market, if you can even get quantity flexibility, it is only a few percent per year. StockInterview: How is that linked to the spot price? Gene Clark: These ‘legacy’ quantity flexibilities allowed buyers to shift annual delivery quantities among contracts, or into the spot market. They could take advantage of shifts in the spot market price, helping to minimize the buyers’ overall costs. Given the price ramp-up in the past three years, every buyer would have exercised these options. This is why utility purchases are well in excess of their annual requirements. Utilities are building inventory using these cheap options. If you have a built-in flexibility option under a long-term contract, buying and holding is a no-brainer. StockInterview: Some are contending the tail (spot price) is wagging the dog (long-term contracts). Please explain how the spot price does this. Gene Clark: When prices started moving up, buyers and sellers had little inkling as to ‘fair’ future prices for delivery under these long-term contracts. They shifted to higher reliance on the market-price mechanism. Since the price run-up and shift to a seller’s market, starting in 2004, this became the prevalent price mechanism. Especially since sellers can demand very high floor prices in these contracts. Gene Clark significantly contributed to the 304-page uranium textbook, entitled “Investing in the Great Uranium Bull Market.” He has become a frequent contributor to StockInterview.com and is often called upon his insights and commentary into developing stories on the uranium price. More Info: http://bookstore.stockinterview.com -- Posted Monday, November 6 2006 | Digg This Article | Investing in the Great Uranium Bull Market Previous Articles by James Finch |
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