QUOTE AND NEWS
Motley Fool  Jul 28  Comment 
This metric in Japan will likely decide how much extra demand there will be for uranium in the coming years.
The Australian  Jul 28  Comment 
BHP Billiton is unlikely to ­approve a long awaited expansion of the Olympic Dam copper and uranium mine this decade.
SeekingAlpha  Jul 23  Comment 
By The Gold Report: Timing the market is sometimes more important than finding the right equities. But if you can time the market and find the right equities, that can be the most direct path to success. Jocelyn August, senior analyst and product...
Jutia Group  Jul 22  Comment 
The Mining Report: The top catalysts Sagient Research follows tend to move resource stock prices 6–10%. What are the top three catalysts in precious metals equities? Jocelyn August: The top three catalysts for absolute movements—either up or...
SeekingAlpha  Jul 21  Comment 
By Gary Bourgeault: It's been a long time since uranium and Denison Mines has been in the thinking of the vast majority of investors - even commodity investors, as Japan in particular has been extremely slow to bring its reactors back on line, and...
WA Business News  Jul 18  Comment 
Uranium Equities has announced a one for three rights issue and placement to raise up to $1.5 million for its Alligator Rivers uranium field and general working capital.
SeekingAlpha  Jul 17  Comment 
By Jeb Handwerger: Last week I was interviewed about uranium (OTCPK:URPTF) by The Energy Report and I told them to get ready for doubles and triples in uranium and that we may see a powerful bounce off the bottom in the near term. Remember this...
The Australian  Jul 17  Comment 
THE uranium price slump after the 2011 tsunami destroyed the Fukushima nuclear reactor could eventually work in Australia’s favour.
The Australian  Jul 17  Comment 
SAGELY, uranium investors yesterday treated news of an imminent reboot of Japan’s nuclear industry as a handy boost to sentiment.




RELATED WIKI ARTICLES
 

Uranium is a metal whose most well known commercial use is as fuel for nuclear power plants, which provided around 16% of the world's electricity in 2007.[1] (Other uses include counterweights for helicopters, ammunition and radiation shields. The exact use depends on the specific isotope.) Nuclear power is slowly making a comeback as an electricity source of choice in the U.S. market. At the middle of 2009, the U.S. Nuclear Regulatory Commission (NRC) had received 17 applications for combined construction and operating licenses (COL) for 26 new nuclear reactors.[2] Also, in June of 2009 there was evidence of growing U.S. government support; the Energy Department said it would invest $18.5 billion in federal loan guarantees to four U.S. firms to help build a new generation of nuclear reactors.[3]

Nuclear power is also likely to be key to the ongoing emergence of such economies as China and India,[4] seen in their goals to double their nuclear capacity within the next 5-10 years.[5] On the supply side, uranium production has been growing at a snail's pace, the major players have started locking up long term supply, and Russia and the U.S. have slowed down their refined uranium sales programs.[6][7] As a result, demand for uranium has outstripped supply for every year since 1989.[8] Despite all this, uranium prices fell 40% from October 07 to March 09.[9][10] The global financial crisis is to blame - nuclear power plants represent huge capital investments, and demand for electricity is driven by business activity. With cheap credit a luxury of the past, raising billions of dollars for projects that won't start earning for at least six years has become very difficult.[11] Still, expecting the nuclear industry to partially recover, analyst estimates compiled by Bloomberg in April of 2009 forecast that uranium prices will rise 30% by the end of the year.[12]

The chart at left shows continuos front-month futures prices for Uranium traded on the NYMEX.

Prices, Ticker, Delivery Dates

Uranium Futures contracts are traded on the New York Mercantile Exchange under ticker symbol UX and are delivered in every month of the year. (For more information on commodity tickers, check out the commodity ticker construction page.)

Uranium spot prices have increased dramatically since 2003, when the commodity was under $10 per pound. Its peak spot price in 2007 was over $125 per pound and have since fallen to $50 as of November 2008.

Most utility companies secure a significant percent of their uranium fuel through long-term (i.e., multi-year) contracts with companies such as CCJ. These contracts are often priced in accordance to market conditions with uranium spot prices (i.e., short-term purchases for uranium within one year).

Who Benefits From Rising Uranium Prices

  • Other sources of fuel for electricity production like coal and natural gas all see increases in demand when the price of nuclear energy, one of their largest alternatives, increases.
  • Thorium Power (THPW) produces fuel for nuclear reactors which is composed of both uranium and thorium oxide. Although higher uranium prices raises expenses, this hybrid fuel is much more efficient than pure uranium.[14] That makes it an attractive alternative when uranium prices are high.
  • Because nuclear energy accounts for 20% of the total electric energy consumption in the U.S., a rise in uranium prices makes electricity more expensive for the entire economy.[15] Higher energy prices means people will turn on their air conditioners less, meaning less wear and tear and therefore less frequent replacements. But high electricity prices also provide an increased incentive to replace old, obsolete equipment to more energy-efficient, higher priced lines. Carrier Corporation, a subsidiary of United Technologies, is the largest maker of air conditioners and refrigeration systems worldwide. Additionally, Emerson Electric Company (EMR) is the world's largest manufacturer of energy efficient (heat pump) compressors and is a global supplier to all major HVAC OEMs such as United Technologies.

Who Loses From Rising Uranium Prices

  • Nuclear power plant manufacturers and maintenance companies Westinghouse Electric, Shaw Group (SGR), Fluor (FLR), and Bechtel see smaller demand for new power plants when their product becomes more expense to fuel. However, nuclear power plants are more than 30-60 year investments - short term fluctuations in uranium prices only marginally impact their business.[16]

Drivers of Uranium Prices

Demand for Uranium Outstrips Supply

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Source: World Nuclear Association and Metals Economics Group[17]

Every year since 1985, the world's consumption of uranium has been greater than its production.[18] In 2008, uranium producers met only 66% of worldwide demand. To help meet this shortfall, reprocessed uranium and plutonium from the dismantling of Russian and U.S. nuclear weapons has been used.[19][20] The World Nuclear Association estimates that uranium mining will need to increase by almost 300% in the next two decades.[20] The Australian Bureau of Agricultural and Resource Economics estimates that uranium prices will rise 22% from $46.4 in 2009 to $56.7 in 2010 due to the widening gap between uranium supply and demand.[21] NYMEX Uranium futures for December 2010 are in the $48.50 range.

As of January 2009, there were 436 nuclear reactors operating worldwide and a total of 115 reactors under construction or planned for completion by 2020.[22] The demand for processed uranium continues to rise as countries throughout the world increase their reliance on nuclear energy for electricity:

  • 68 reactors are scheduled to be built in Asia, as energy demand is driven by economic expansion. About three-quarters of this growth is expected to occur in China and India, which have announced plans to build 31 and 18 reactors, respectively.[22]
  • In Russia, Ukraine, and Armenia, it is anticipated that 23 reactors will be built, offset by one closure in Armenia and six in Russia.[22]
  • In Finland, a new European Pressurized Water Reactor is being constructed and, when completed, will bring the country’s total to five nuclear reactors.[22]
  • In France, the construction of a second European Pressured Water Reactor is expected to begin in 2012.[22]
  • South Korea’s generation blueprint anticipates that by 2020 roughly half the country's electricity will be nuclear-generated.[22]
  • At the middle of 2009, the U.S. Nuclear Regulatory Commission (NRC) had received 17 applications for combined construction and operating licenses (COL) for 26 new nuclear reactors.[2]

Factors Affecting Demand

The Global Economy Is Slowing

Nuclear energy is expensive. Said in 2005 by the CEO of Dominion Resources, "A new 1,400-megawatt nuclear power plant is going to cost about $2.6 billion. It is going to take 6 1/2 years to build. While you are building, you have to issue equity, you have to service that equity. You have to issue bonds; you have to service the bonds with interest. You don't have any money coming in. You have an average of $1.3 billion out for 6 1/2 years that is not earning anything."[23]. This was said 2 years before the credit crunch, and 3 years before the credit collapse. Now, the cost of borrowing $2.6 billion is going to be much higher. Furthermore, with economies across the globe slowing down, demand growth for electricity is falling off. The combination of the two makes nuclear power plants a bad investment, which is why uranium prices have been falling at a record pace - from $138 in July 07[24] to $45 in October 08.[25]

Nuclear Energy Is Gaining Acceptance as a Clean, Reliable Alternative

New nuclear power plants are very safe,[26] and in a bid to combat global warming and keep up with soaring demand for electricity, countries are rushing to build nuclear power plants. As of October 2008, there were 439 nuclear reactors in operation that generate about 15% of the world's electricity.[27] In September 2007, 16 were under construction, 34 were on order and 86 were proposed.[28] A year later, 26 were under construction, 99 were on order, and 232 have been proposed.[27] That uranium prices have fallen 40% from October 2007 to October 2008, shows that the market expects large delays and cancellations.

China and India's Uranium Demand

In 2009 Indian reactor demand for uranium was estimated at about 3 million pounds and is expected to rise to as much as 10 million pounds in 15 years.[29] India has 17 reactors operating and six under construction, and another 23 reactors are expected to come on line in the next eight years. China has 11 reactors operating, 16 under construction and 35 new plants expected to come on line within the next eight years. China's uranium demand is expected to grow 4-6 times by 2020, as the country increases its annual installed nuclear power capacity to 40 million kilowatts from 9 million present.[30] The sharp increase in the demand for uranium from India and China will continue to raise the price of uranium.

Cost of Coal & Natural Gas

As the price of coal and natural gas increase, electricity production based on traditional sources of fuel becomes more expensive. Nevertheless, nuclear energy is still the most expensive of the three.[31] Several things could change that. One, government incentives have and will continue to make the construction and operation of select nuclear plants profitable. Two, the implementation of carbon taxes or a carbon trading scheme (as President Barack Obama has suggested)[32] would make nuclear energy significantly cheaper than fossil fuels.[31]

Alternative energy competes with nuclear energy

Wind, hydroelectric energy, and solar energy all compete with nuclear power for a share of the alternative energy market. In 2008, production costs were 8.8 cents (U.S.) per kilowatt hour for nuclear, 7.4 cents (U.S.) for coal, and 10.6 cents (U.S.) for natural gas.[33] Though renewable energy sources will need to become more affordable and more widely adopted in order to become a more serious competitor to uranium, advances in technology are making investment in renewable energy more attractive.

Power Generation Costs for Various Energy Sources in 2008[33]
Fixed Cost (cents/kWh) Variable Cost (cents/kWh) Total Cost (cents/kWh)
Coal 4.1 3.3 7.4
Natural gas 2.8 7.8 10.6
Nuclear 8.0 0.8 8.8
Wind 8.2 0.0 8.2
Energy Return by Source in 2008[34]
Energy return on Energy Invested
Coal-fired power plant 2.5
Nuclear power 4.5
Hydroelectric power 10
Wind power 35
Natural gas 10.3

Alternative Energy Is Becoming Cheaper

With every passing day coal power, wind energy, hydroelectricity and solar power all become more cost efficient and eco-friendly. Nuclear energy is still the cheapest renewable source of energy.[35] That lead won't last forever though. New technological developments are making the most viable of the competition, solar energy and wind energy, cheaper every year.[36] However, it'll take a very long time until widespread reliance on alternative energy will be possible. Even the most optimistic projections by the Energy Information Administration (EIA) don't see more than the addition of a couple gigawatts of renewable energy capacity over the next ten years.[37]

Factors Affecting Supply

Growing Economies Are Locking Up Supply

As the importance of securing renewable sources of energy rises, uranium is becoming more valuable. China is involved with long term deals that would effectively take Kazakhstan and some African countries out of the uranium production market.[38] Russia has stopped selling its uranium at market prices, and is now building up large stockpiles for future use.[39] Russia has also started signing deals with Australia, one of the two largest producers of uranium in the world.[8] China isn't leaving Australia for Russia though, having made a multi-billion dollar deal themselves.[39] Although these deals will take large supply off of the market, it will also take large demand with it. However, in a market where demand outstrips supply, these deals will take out a higher percentage of supply than demand, pushing the price of uranium upwards.

Nuclear Weapons

Because nuclear weapons contain ultra-enriched uranium, a single ton of military high-enriched uranium is equivalent to 350 tons of uranium oxide.[40] Since 2000, uranium from the U.S. and former countries of the USSR has provided 13% of the world's uranium requirements.[40] However, Russia's supply is slated to end around 2013,[7] and the U.S. has started to downsize its uranium selling program.[6]

Lower Inventory Supplies and Higher Prices

Traditionally 20-40% less than consumption (last 25 years), production is closing the gap enabled by positive pressures on uranium prices (which directly affect the rate at which new projects are developed) and declining inventory supplies/sales. Between 2007 and 2010 primary production rose 25%.[17]

Notes

  1. World Nuclear Association - What is uranium? How does it work?
  2. 2.0 2.1 Nuclear Power in the USA, World Nuclear Association, Accessed on January 5, 2010
  3. Letzing, John, Four power companies are expected to split $18.5 billion in federal financing to help build a new generation of nuclear reactors, according to a report published late Tuesday. MarketWatch June 16, 2009
  4. Blogging Stocks - China, India see nuclear energy as essential to electricity plan
  5. World Nuclear Association - Nuclear Power in China
  6. 6.0 6.1 StockInterview.com - U.S. Government May Sell ‘Very Small’ Amount of Uranium in 2007
  7. 7.0 7.1 Mining Weekly - South Africa seen as pivotal source of uranium supply
  8. 8.0 8.1 Seeking Alpha - Four Best Global Deals on Uranium
  9. Mineweb - Uranium prices fall again as credit crunch bites
  10. UxC - Ux Price Indicators
  11. Mineweb - Uranium prices fall again as credit crunch bites
  12. Bloomberg - Copper’s Declining Demand Pushes Prices 21% Lower
  13. World Nuclear Association - World Uranium Mining
  14. Technology Review - Cleaner Nuclear Power?
  15. Stanford Formal Reasoning Group - FAQ About Nuclear Energy
  16. Leonardo Energy - Life expectancy of nuclear power plants
  17. 17.0 17.1 Uranium miners respond to supply deficit by increasing mine production (2010-09-08).
  18. About Uranium: World Market
  19. 20.0 20.1 CNN: "Nuclear power's white-hot metal"
  20. Uranium Demand Could Outstrip Supply For Three Years Straight (CCJ)
  21. 22.0 22.1 22.2 22.3 22.4 22.5 European Nuclear Society: Nuclear power plants, world-wide
  22. Washington Post - Uncertainties Slow Push for Nuclear Plants
  23. Australian Government, Atlas Of Minerals Resources - Uranium
  24. UxC - UxC Nuclear Fuel Price Indicators
  25. World Nuclear Association - Safety of Nuclear Power Reactors
  26. 27.0 27.1 World Nuclear Association - World Nuclear Power Reactors 2007-08 and Uranium Requirements
  27. World Nuclear Association - World Nuclear Power Reactors 2006-07 and Uranium Requirements
  28. Bloomberg: Cameco Will Open Office in India as Uranium Demand May Triple
  29. China's uranium demand for nuclear power to rise 4-6 times by 2020
  30. 31.0 31.1 Natural Resources Defense Council - The Future Role of Nuclear Power in the United States
  31. International Centre for Trade And Development - Obama Calls for Carbon Trading Scheme, Vows Strong Action on Climate
  32. 33.0 33.1 Montana Environmental Information Center
  33. Suzlon FY 07-08 Annual Report, Management Discussion and Analysis, p. 5
  34. Climate Progress - Nuclear power, Part 2: The price is not right
  35. Eco Geek - Cost of Solar Panels Expected To Plummet
  36. Energy Information Administration - Renewable Energy Projections in Alternative Scenarios
  37. Financial Sense - BIG JOURNEYS BEGIN WITH SMALL STEPS
  38. 39.0 39.1 Uranium Stocks - Peter Schober Gives His View On Uranium
  39. 40.0 40.1 World Nuclear - Supply of Uranium
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