Uranium prices continue to rise, increasing the cost of generating nuclear power and spurring investment in mining. The 143 percent jump on the uranium spot market since October, however, is being met with optimism -- hopes that uranium`s growing pains will lead to a more sustainable nuclear fuel sector.
Analysts say the new price marker is nearing what may be a plateau for a uranium market that was so depressed by government inventories -- to around $15 from the 1980s until earlier this decade -- that there was little investment in mining and production of the material.
The two leading uranium information and consulting firms released late Monday their new prices for spot market purchases: UX Consulting pegged it at $135 per pound and Trade Tech at $138 per pound.
'Right now, there is a gap between primary production and reactor requirements on an annual basis,' said James Malone, vice president of nuclear fuels for Exelon Corp. 'In the future, I believe that the primary production will be able to meet reactor requirements going forward, and that`s what will get us back to a reasonably priced market.
'Am I thrilled that the price is where it is? No. Do I think it needs to be higher than it was? Yes,' Malone said. 'The financial intermediaries, the hedge funds, etc., have amplified a price signal that needed to be sent to the production side so that production would increase, and therefore be able to meet demand in the future. So while I think the price has way overshot where it needs to be, it is sending that signal and the exploration and production activity has ramped up accordingly.'
Nuclear power plants can take the price boom, experts say, since fuel is a small portion of the cost of generating electricity, especially compared with other energy sources.
But as the inventories dwindle and the global nuclear renaissance gains momentum, there is both a fear and reality that uranium, which is enriched to become fuel grade, is becoming scarce above ground.
'Mostly there`s very limited supplies available and a lot of interest in buying, especially on the part of the traders and the, for a lack of a better word, hedge funds, the guys that are looking for some way to play the uranium market,' said Gene Clark, chief executive officer of Trade Tech. He said the price will likely escalate into 2008, as new production ramps up and demand increases.
'There`s a lot of potential production and a lot of exploration going on right now, which is a good thing, because we need the supply in the long term,' he said. 'In terms of uranium producers, a lot of them are coming to the forefront; we`re seeing projects resurrected.'
Canada, Australia and Kazakhstan are the largest uranium mining countries, but African nations as well as Russia plan to pick up their industry. Even the U.S. Nuclear Regulatory Commission estimates applications for 14 new uranium projects, seven expansions of current facilities and four restarts of older projects.
'The NRC expects a significant workload increase with the resurgence in the uranium recovery industry,' spokesman David McIntyre said.
There are 437 reactors online around the world, producing 16 percent of electricity needs. The World Nuclear Association estimates 55 percent of the 66,500 tons of uranium the reactors consume annually is mined; the rest comes from inventories dating back to the increase and subsequent reduction from the nuclear arms race. There are another 286 reactors proposed, planned, ordered or being built, including nearly 30 in the United States.
'For nuclear energy, fuel is a much smaller component than for other fuel sources,' said Caren Byrd, executive director for Morgan Stanley`s Investment Banking Division. 'Having a steady fuel price contributes to the economic advantages that nuclear has, but when fuel is a relatively small proportion versus other fuels, the increases don`t have the same impact that you`d have with the same comparable percentage increase of a fossil fuel -- coal or gas -- on the impact of electricity.'
It`s 'not the same perceptible impact on the consumer or on the production cost as other fuels,' Byrd said, 'as opposed to fossil fuel when fuel can be, like in gas generation, 60 plus percent of the overall cost, if you have the same percentage increase you`d see it very dramatically.'
Fuel made up 26 percent of the cost to produce electricity in nuclear plants in 2005, though only one-third of that was the actual uranium; the rest was the cost to enrich and fabricate it, according to the Nuclear Energy Institute.
Morgan Stanley forecasts the price will stay above $100 a pound through next year, then settling at $40 a pound by 2012.
Grant Stuart, senior manager for consulting at Deloitte & Touche, said he`s 'extremely bullish about uranium.' He predicts $140 per pound through next year and then a reduction to between $50 and $55 starting in 2010.
'As a direct result of the spot price increase, more and more uranium producers and prospectors are coming on stream,' he said. 'This, together with the fact that uranium is more common than tin, will result in an inevitable balance between supply and demand.'
Nuclear Regulatory Commission, 
Kazakhstan, 
Canada, 
Australia, 
Uranium, 
prices
