Uranium's Wild Ride - Where it Has Been and Where it is Going

Implications: The  nuclear power industry became accustomed to low cost Uranium.  During the past year, this has changed as extraordinary heights were reached.  Those high prices have recently dropped and will erode more by 2010-2013 as new mines come on line.  Entry barriers are low, exploration and development is preceding rapidly and political opposition is disappearing.  Uranium is ubiquitous on the earth's crust and reserves can be expected to increase with current prices and increased exploration.  It may be too early to predict where Uranium prices will go but it is likely that long term prices will be determined by the structural characteristics of the industry.  Even with ownership concentration, production and operating costs will become the major determinant for pricing.  Thus, very efficient and large mines, with good ore bodies located near the surface, will eventually set market prices.  In the short term, a few market entrants will be highly profitable, but that will not last long.

Analysis: Current Uranium mine production accounts for approximately 65% of demand for the 438 nuclear power plants that provide 16% of the world's electricity.  The remaining supply comes from government and industry reserves, the most significant of which is Russian weapons grade, highly enriched Uranium.  Four major suppliers dominate the market but will not be able to fill the demand void as new plants come on line worldwide.  With 30 plants under construction, 80 planned soon and over 200 new units being considered, Uranium demand will easily double by 2025.  Withdrawal of Russian military supplies and depletion of other inventories, coupled with the demand being created by new plants, have driven prices up sharply.  Peak spot market prices approached $140/pound, but have eroded to $75/pound recently.  These high prices, coupled to relatively low entry barriers and the dismantling of political opposition, have induced over 50 new entries into the supply market.  Who will be successful and where are prices likely to go?  This author has developed a "test" to answer the first question. As to likely future prices, the analysis suggests that supply/demand balance will be reached in 2013 -2015 and that the low cost, high volume producers will dominate the market.  This suggests that long term prices (in current dollars) below $35/pound are possible and they may be even lower than that.  In the near term, a few new entries will generate high profits, but that will last only for a few years.