Commodities | Apr 13 2006
Uranium may be the new "gold" (or the old one if you refer to what happened over the last decade with the metal), but ANZ economists believe the market for "yellow cake" is not well understood just yet.
They thought they could help a hand by highlighting some relevant facts about the uranium market.
Currently the bank notes uranium generates 16% of the world’s energy from 441 nuclear reactors, but this is expected to increase significantly in coming years as a further 24 reactors are being built and another 154 are either in the planning or proposal stages.
While nuclear energy is cleaner than other fossil fuels the big attraction is cost, the bank noting energy from a coal plant costs three times more, while from a gas plant it costs four times more.
Sources of uranium are limited, as almost 70% of the world’s supply in 2004 came from only 10 mines, located in Canada, the world’s largest producer, Australia, which has the largest resource (Olympic Dam remember?), and Africa. Current reserves are estimated to be enough for 65 years of supply at current rates of consumption, though the bank notes with more plants under construction this figure is likely to fall.
This construction boom is likely to have a limited impact on prices in the short-term though, as the bank notes supply contracts are usually long-term in nature so any changes to the price generally take some time to fully flow through.
Long lead times for new projects also limit the short-term volatility in prices, which suggests some of the gains in the recent rally in the sector are unsustainable as Australia’s uranium production is unlikely to rise much in the next few years, particularly given a number of state governments remain opposed to uranium mining.
Having said that, the bank notes the federal government is developing a "Uranium Industry Framework", so future development plans should at least be more certain than is the case under the current system.