This month the price of uranium reached US$27.30 a pound. Historically speaking, uranium prices have proved fickle, from its peak to trough range of US$143 May 2007 to US$7.10 in December 2000 respectively.
The spot price of uranium remained relatively volatile throughout this year. Before significant production cuts to Africa, Canada, Kazakhstan and the United States, which was announced late in 2016 to early 2017, uranium saw prolonged declines in prices.
Demand for alternative energy aiding uranium price
Global urgency to deliver reliable and avoidable electricity to our cities is at an all-time high. Along with growing populations and compounding pressure from climate change and emissions worries, it seems that Australia and many other countries around the world are in need of a solution.
And this is where uranium comes in. The only problem is that the dangers of nuclear technology are seared into public memory as viscerally as the images of melting skin.
It’s natural to be sceptical of new technology, and of course we are all well aware of the cons that come with uranium when harnessed incorrectly. But what can be said of its benefits?
Firstly, it doesn’t produce any greenhouse gases such as carbon dioxide or methane, the leading causes of air pollution. It also doesn’t have adverse effects to land or water supplies, like mining coal and crude oil.
Nuclear power also has extremely low operating costs, so it’s cheap, initial building expensive aside. But even then, nuclear reactors can run for 40–60 years, and production isn’t dependant on external factors like wind and solar, making it one of the more reliable energy sources.
Another advantage to nuclear energy is its efficiency. One kilogram of uranium produces the same amount of energy as three million kilograms of coal. Think about that for a second. The low operating cost of uranium and nuclear power means less consumer costs — which could result in a big reduction in electricity bills.
Currently China has 18 nuclear conductors underway. But this shouldn’t come as a shock to you, the Chinese economy had to support 1.379 billion people in 2016 alone. And while this number is only set to rise, you best believe that China is looking for reliable and affordable energy to power its cities.
It’s little wonder that China, as well as Russia, have taken the lead and are now the fastest growing markets for uranium. Other countries like India, and many in Europe and the Middle East are expected to follow suit, by expanding projects and investing in uranium operations. Potentially, this could be the driving force behind a global uranium market breakout.
But as with any commodity based influx, there’s a chance demand could out-weigh supply.
Uranium price forecasts supply and demand struggle
Recent uranium prices are well below what’s needed to create new supply sources. Specialist at the International Atomic Energy Agency Adrienne Hanly said that uranium resources are able to meet high volume demand situations, but supply challenges may mean shortfalls over the next 5–10 years.
So here’s what we can potentially expect from uranium should demand succeeds supply.
Global uranium inventories will deplete, as low prices have rendered 75% of uranium mines uneconomical according to Investor Intel. Combine this with iron ore’s volatile prices that are stemming from China’s economic woes, as well as declining iron ore supply in the bigger mines of Australia and Africa. This could all contribute to uranium mines becoming uneconomical.
In fact, prices are so low that it’s actually cheaper to purchase uranium from inventory storage than it is to mine. This was the case for Cameco, a Canadian based uranium producer. As David Doerksen, Vice President of the company said in statement:
‘We will have to rely on our inventories, or make opportunistic purchases, to meet these commitments. It seems that many in the industry are relying on inventory. I would suggest that only a relatively small portion of the inventory overhang is truly mobile.’
Comeco predicts that its share of uranium’s 2018 production will be around 9.1 million pounds, as well a purchase of 8–9 million pounds.
That said, 2018 global sources are only set to reach 135 million pounds, that’s a 55 million pound gap in contrast to last year’s demand of 190 million pounds.
From this the US uses about 50 million pounds of uranium but only produces around 2.5 million and imports the rest. Meaning out of the 99 reactors that the US currently has, there’s only the amount of energy produced from one reactor. This makes the US economy the most susceptible to a threat in uranium supply.
Uranium Inventory was recorded at 1.79 billion pounds in February this year, which is either sold or kept for strategic reasons. Taking into account the 55 million pound shortfall, it’s a real possibility that the world could experience a uranium scarcity in the next couple of years.
Reva Klingbiel, president of TradeTech, had this to say about current forecasts:
‘We should be aware of impending price volatility, which we may expect to see, especially if buyers begin to alter their contracting activity in advance or in anticipation of material changes to the structure of the market,’ she said.
But this could potentially be preferable conditions for a uranium breakout. Now more than ever, global economies are looking for electricity solutions. And if you think uranium is not a likely alternative, perhaps you should reconsider. By 2030 Australia’s uranium exploration is thought to double after increasing demand from other countries.
And this trend only looks likely to continue. Stay tuned.
For Money Morning
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