Analysis: Uranium price surge to continue

Published: April 13, 2007 at 6:53 PM

By BEN LANDO
UPI Energy Correspondent


WASHINGTON, April 13, 2007 (UPI)

The price of uranium has jumped nearly 19 percent since April 2 in a rush led by supply instability, constant and planned increase in demand, and investors looking to gobble up supply before the price spikes again.

The nuclear industry isn't worried its fuel stock will price them out of competition with other electricity generators, however, and the mining industry is reaping the new incentive to dig for more, which would loosen the belt in the current tight market.

But a significant amount of expected supply is being delayed from entering the market after flooding in the world's largest mines, and experts say the price will continue to rise.

Water poured into Cameco Corp.'s Cigar Lake mine in Saskatchewan last April and October. Because of the flooding, the uranium mine will be closed for some time, and it's going to keep an estimated 18 million tons of uranium from getting to the market for another three years, according to Nuclear Engineering International. Worldwide production of uranium is about 100 million pounds annually.

"You could see that the trend in prices has been up for several years or more now, but it really accelerated after that flood," said Jeff Combs, president of The Ux Consulting Co., a Roswell, Ga., uranium analyst. "At that time price was $56 (a pound), so it's doubled in a six month period."

Uranium was $113 a pound April 9, up from $95 a pound April 2, Combs said. (Ux publishes prices every Monday.)

Uranium prices hovered at or below $10 a pound during the 1980s and 1990s, following a market that relied on crutches. Nuclear energy was born from the search for nuclear weapons, and governments controlled the trade because of proliferation concerns.

Prices were high in the 1970s, artificially bolstered by government contracts. Inventories started to build as supply exceeded demand, especially when weapons-grade uranium was blended down. This depressed prices and reduced incentives to explore and produce more.

Nuclear energy is on a rebound. Thirty new reactors are expected to come online worldwide in the next 15 years, including in the United States. Currently, 435 nuclear reactors in 30 countries feed 16 percent of the world's electricity. Those reactors -- including 103 in the United States -- consume about 180 million pounds of uranium a year.

Most uranium is sold on the spot market instead of in long-term contracts. Combs said spot sales are on pace for 25 million pounds this year, "which isn't as much as the previous couple years but still a decent amount of material."

Suppliers "really didn't want to peg a price for delivery," he said, "because the market was moving so fast and they thought it was going to continue to move a lot."

"In this type of environment, which you can call an extreme bull market or extreme sellers market, sellers are loath to peg a price out there; they're afraid of leaving some money on the table as the market's moving pretty quickly," Combs said.

With that in mind, speculators are trying to scoop up deals before the next increase. "You look at the situation where you have supplies already under pressure because of inadequate expansion of production, and on top of that you have the hedge funds and investment funds jumping in buying it, and then you have these mishaps, the floods and stuff, so ... an already fragile market is getting hit on both supply and demand side, and that's just really sending prices through the roof," Combs said.

One would think mining companies are rushing to find more uranium to sell at these hot prices -- both at today's and last year's take. And they are, with some trepidation.

"Certainly these kinds of pricing make those very attractive propositions to produce more uranium," said Preston Chiaro, chief executive of energy at global uranium mining and exploration firm Rio Tinto. It has many prospects for increasing current mining production and new exploration, though its Ranger mine in Australia recently flooded from massive storms.

Chiaro said he doesn't see any new large supply sources delivering to the market for the next five to 10 years.

"My thoughts are on the one hand I'm smiling because I sell onto these markets," though most of Rio's contracts are long term, he said, "so we won't see the benefits for the pricing for some time."

"This sort of volatility in the market makes me a bit nervous," Chiaro said, "because like anything else that rises this quickly there's the risk, of course, that it could drop very quickly. And that's in no one's best interest."

Mitch Singer, spokesman for the Nuclear Energy Institute, the U.S. nuclear field's trade arm, said the industry isn't worried.

"We believe that there will be adequate supplies of uranium for the next five or 10 years and well into the future," Singer said. "I don't see a shortfall of uranium impacting the direction toward new nuclear power plants."

Ux's Combs said market conditions are ripe for the cost of uranium to increase more.

"I think it's going to continue to climb, (but) I think the market may take a breather because it shot up so much," Combs said. "I don't think it's necessarily the high point in price."

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