A supply glut could see uranium prices tumble over coming months, but that will be a buying opportunity as demand from nuclear reactors over coming years is expected to surge.
Governments around the world are sizing up nuclear energy - a means of generating electricity - as an alternative to expensive fossil fuels such as crude oil and coal, which pollute the atmosphere when burned.
Uranium on the spot market could fall to $35 (U.S.) a lb over the next quarter, to its lowest since late 2005 from around $45 a lb currently and $136 a lb in June 2007.
Over the next year it is likely to be capped at $55 a lb, but beyond 2011 some analysts expect it to rebound to $80 a lb.
"Uranium will be oversupplied in the short term. Utilities have more than they need for this year," said John Wong, portfolio manager at New City Investment Managers.
"Next year the uranium market - estimated at about 180 million lbs - will be oversupplied by about 10 million lbs."
Reasons for the oversupply include strong production growth in Kazakhstan, one of the world's top uranium producers, which said this month it will aim to produce 15,000 tonnes next year compared with 13,800 tonnes this year.
Oversupply is expected to be fuelled by the U.S. Department of Energy, which last year said it plans to sell up to 5 million pounds of the government's excess uranium each year to nuclear power plants.
A return to full production at Australia's Olympic Dam, with the world's largest known uranium deposit, owned by mining giant BHP Billiton, in the first quarter of next year also will add to the surplus.
"Uranium is going to underperform over the next two to three months," said Max Layton, analyst at Macquarie. "We see a (spot) price in the high $30s as a very good buying opportunity... We see the market tightening up in 2011 and 2012."
Dismantled Nuclear Warheads
Uranium fuel pellets are used to create fission, or splitting of the atom. Splitting the atom creates heat, which with water produces steam, used to drive turbines to produce electricity.
Uranium prices slipped after June 2007 as supplies rose. The fall accelerated after Lehman Brothers collapsed in September 2008 as hedge funds sold to raise cash to cover losses in other markets and meet redemption calls.
Supplies from Russia, which is dismantling nuclear warheads and turning weapons grade material into that usable by nuclear power reactors, also helped depress prices.
"The quantity coming from this source (Russia) is a significant 20 million lbs a year," said Jonathan Hinze, a vice President at Ux Consulting.
Russia has expressed no desire to refresh the 'Megatons to Megawatts' program, under which it will recycle the equivalent of 20,000 warheads and create enough uranium to power the entire United States for two years, but analysts expect reduced levels of Russian recycled supplies to keep flowing onto the global market.
Analysts expect to see a deficit, albeit small, in the uranium market in 2011. They say many uranium projects at current prices do not yield a profit and that new ventures could be abandoned.
Canada's Denison Mines last month said development of its Midwest and Caribou projects would remain postponed partly because of the economic climate and the uranium price.
Major uranium producers include BHP , rival Rio Tinto , Canada's Cameco , France's Areva, Russia's ARMZ and Kazatomprom.
Mine supply is expected to grow at about 10 per cent this year from 114 million lbs in 2008, Ux Consulting said.
Some analysts expect supply to grow at an average of about 10 per cent a year for the foreseeable future.
But it is unlikely to help match swelling demand over coming years from the fast-growing nuclear power industry, seen by some as a "green" alternative to emissions-heavy fossil fuels.
"The move to clean energy to cut emissions, not only in Asia, but also in Europe and elsewhere is a very important positive impulse for uranium prices," said Eugen Weinberg, analyst at Commerzbank.
Statistics on nuclear reactors tell the story. According to the World Nuclear Association there are 435 operating reactors around the world currently, 53 are under construction, 136 are planned and 299 have been proposed.