Commodities | Nov 01 2016
What has changed between now and 2004, when the uranium price was last under US$20/lb?
By Greg Peel
The spot uranium price has fallen to below US$20/lb for the first time in twelve years. A decade ago, notes industry consultant TradeTech, the demand-supply balance of the uranium market was similar to that of today.
Ten years ago utility inventories of uranium were excessive, leading to an overhang of supply. Low prices led to a lack of incentive for the supply-side to invest in development and exploration. Today, as then, supply is being curtailed to avoid further cash burn and new projects are simply not worth considering.
Lack of new development was nevertheless one reason the spot uranium price suddenly ran from under US$20/lb in 2004 to almost US$140/lb in early 2007. When demand started to pick up, supply could not keep up.
So should we strap in and be ready for the price to be back in triple digits within three years?
Probably not advisable. Back in 2004, the newest hot topic around the world was global warming. Carbon emissions need to be reduced, scientists warned, or we’d all be ankle deep in salt water. Nuclear power is carbon free (once operating; a significant carbon footprint is left by the construction of facilities and mining the uranium to fuel them). Nuclear energy is set to take off, particularly in emerging Asia. And most specifically in China.
Speculators began to assume a low uranium price could not stay low for too long. With producers unable to respond with any expediency to a pick-up in demand, prices began to run. A bubble formed. Like any commodity price bubble throughout history, a burst was inevitable. When every Joe with a mining tenement announced evidence of uranium, stock prices soared. Uranium is one of the most abundant elements on earth – it’s just hard to find in commercial quantities.
In 2008 the spot uranium price had crashed back to US$60/lb before the GFC hit. Finally bottoming out at US$40/lb two years later, the price began a post-GFC run. Then in 2011, the tsunami hit.
Interestingly, TradeTech points out, there is no change to the outlook for Asian nuclear energy growth now to what there was back in 2004. Fukushima caused a delay, forcing much higher safety standards for reactors, but today Asia accounts for two-thirds of new reactor builds. Aside from the global warming fears that emerged a decade ago, China in particular has learned in the interim that with economic emergence comes pollution, if not adequately addressed.
It is projected that China will end this decade with the second highest number of reactors in the world.
But a decade ago, Japan was drawing 30% of its electricity needs from nuclear energy. Today all bar three of Japan’s peak of 54 reactors are idled or shut down. Low cost natural gas and subsidies for renewable energy development are making US nuclear power uncommercial, even with the uranium price at a twelve-year low, and hence legacy US reactors have begun to shut down well before their official use-by dates. Governments in Europe have reconsidered nuclear energy as a power alternative since Fukushima.
At some point the spot uranium price must rise. The question is as to how many producers can remain in business until that happens.
TradeTech reports six transactions concluded in the spot uranium market last week totalling 1.1mlbs U3O8 equivalent. The consultant’s weekly spot price indicator has fallen US25c to US$19.75/lb.
Two transactions were reported in term markets, but for less than 1mlbs volume. TradeTech’s term price indicators remain at US$23.70/lb (mid) and US$37.00/lb (long).
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