European manufacturers are looking at nuclear energy to secure long-term power prices, with Alcan considering building a plant to feed its aluminium smelting capacity in France and construction of a reactor in Finland is already under way to supply the paper and pulp industry.

China plans to build 30 new reactors by 2020 and the United States, Britain, South Korea, Russia, Ukraine, India and Chile also looking at reactor programs.

Spot uranium is trading at $29.50/lb according to the Ux Consulting (UxC) website, a leading publisher of uranium prices and price forecasts, against $8-10/lb three or four years ago.

Industry watchers said prices could rise to $50 or even $100/lb as years of low prices and under-investment in mining capacity result in significant shortfalls of material.

"I think $100 is unlikely. But $50 is certainly not out of the question and the market is definitely not capped at $30," Jeff Combs, president of UxC, said.

In addition to strong fundamentals, speculative interest could also push uranium prices higher. [nL18268489]

DEMAND RISING

"At the moment the world requirement (for uranium) is about 65,000 tonnes per year, but that is rising by 1,000-2,000 tonnes per year, so it will get above 100,000 tonnes in the early 2020s," Steve Kidd, director of strategy and research at the World Nuclear Association, said.

"Production is only 40,000 tonnes, with the other 25,000 tonnes coming from ex-weapons material and inventories that have been built up in the past."

He said a typical reactor consumes about 200 tonnes of uranium per year, but required an initial charge or 'first core' of around 600 tonnes.

"Uranium stocks have fallen because of production shortfalls in recent years and due to the environmental and permitting processes it will take several years for new mines to come into production," Standard Bank London analyst Robin Bhar said.

Kidd said he did not expect primary output to rise much above 45,000 tonnes in the next two or three years.

Canada produces 11,000-12,000 tonnes of primary uranium a year, followed by Australia with about 9,000 tonnes and Russia, Kazakhstan, Niger and Namibia which each produce about 3,000 tonnes per year.

"Primary production is almost at capacity. There is not that much coming on for a few years. The big one will be Olympic Dam in Australia," Kidd said.

"That could increase from 4,000 tonnes to 12,000-13,000 tonnes, but it will take until 2010 or 2011."

BHP Billiton acquired Olympic Dam, the world's largest uranium deposit, when it bought WMC Resources earlier this year.

"While a full feasibility study is yet to be conducted...we believe that there is a high probability of being able to proceed with an open pit expansion," BHP Billiton said.

Other miners were also bullish.

"The fact that there has been a prolonged period of limited exploration and investment suggests that there will be a significant lead-time before new projects will satisfy demand," a Rio Tinto spokeswoman told Reuters.