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Uranium is a compound whose only commercial use is to fuel nuclear power plants. Nuclear power has accounted for about 15% of the world's electricity in recent years. Of all the commodities to ride the volatile global roller coaster in 2007, uranium had the wildest ride. Overall, it gained 28% for the year. But that seemingly simple statistic masks a much-more-complex story. At one point in June, uranium had gained 84% on the year. But then a mass sell-off - including up to 200 tons auctioned off out of the inventory of the U.S. Department of Energy - drove prices from $138 a pound down to $75 a pound in just three months. Even though the U.S. auction was said to flood an already glutted market for uranium, the price roared back to $93 a pound, a price move fueled by a continued demand. Investors can take that incident as a sign of things to come. At a time when global energy demands are soaring - outstripping the long-term supply of such crucial commodities as crude oil - the long-term outlook for uranium is exceedingly bright. Nuclear power is slowly making a comeback as an electricity source of choice in the U.S. market, and will be a key to the ongoing emergence of such economies as China and India.
[edit] Drivers of Uranium PricesUranium 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 about $85 as of September 2007. Nuclear energy is rapidly gaining acceptance as a clean, reliable alternative to burning coal. In a bid to combat global warming and keep up with soaring demand for electricity, countries are rushing to build nuclear power plants. Currently, there are 440 nuclear reactors in operation that generate about 16% of the world's electricity. Another 25 are under construction, 38 are on order and 115 are proposed. Also, there are 284 research reactors and 220 nuclear-powered ships and submarines patrolling the oceans - key facts that nevertheless often slip by most industry analysts. Refined uranium [known in the industry as U308] is what makes nuclear fuel. And the proliferation of new commercial nuclear power plants has the price of the radioactive metal soaring. 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).  Now here's the thing: All told, those reactors soak up about 77,000 tons of refined uranium every year. Yet, in 2006, only about 50,000 tons of uranium was mined. That has forced some countries to run reactors at only 50% to 60% capacity, while others - such as India - have actually been forced to periodically take reactors off line because they lack the fuel to keep running them . For a more-clear picture of the uranium shortfall, consider the chart that follows:
[edit] Demand for Uranium Outstrips SupplyEvery year since 1985, the world's consumption of uranium has been greater than its production. The shortfall in demand for uranium has come from several renewable and non-renewable sources, including reprocessed uranium and plutonium as well as from the dismantling of Russian and U.S. nuclear weapons. As one of the least expensive energy sources on a per unit basis, nuclear energy may see increases in demand as the appetite for energy in large growing economies such as China steadily increase. Now, uranium itself isn't scarce. In fact, it's so widespread that you might even have some in your backyard. But in order to mine it, uranium must be found in large concentrations. And only a small number of these concentrated deposits have been discovered worldwide. With prices escalating, uranium-mining companies are rushing to dig up as much of the stuff as quickly as possible. But that is simpler said than done. It takes seven to 10 years to find and bring a uranium discovery into production. That explains why uranium-mining production was only projected to increase 9% in 2007 over 2006.[1] [edit] Alternative Energy May Displace Nuclear PowerThe increased adoption of ever-cheaper alternative energy sources such as coal, wind, hydroelectricity and solar could put downward pressure on the demand for uranium. However, with increasing renewability of nuclear energy and the vast increases that has been made to ensure its safety, the test is on nuclear energy companies to prove the efficiency of this power source and restore confidence in a power source with a historically bad reputation. [edit] Uranium Mining CompaniesIn 2003, over 80% of the estimated world prouction of U3O8 uranium came from eight companies:
[edit] Uranium Mining OverviewThe major stages in the production of nuclear fuel are:
Mining companies will typically sell uranium concentrates to utility companies, which then turn the fuel into electricity for consumption. The world production of uranium in 2005 was approximately 105 million pounds of U3O8, 90% of which came from eight countries, which are, in order of greatest to least production:
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