Nuclear Power Demands Send Uranium Prices Sky High
Business + Economy

Nuclear Power Demands Send Uranium Prices Sky High

Iva Hruzikova/The Fiscal Times

With fears of depleting oil supplies and tightened coal restrictions potentially on the horizon, a neglected fuel of the future is now receiving a fresh burst of attention: uranium. Nuclear power accounts for one-fifth of U.S. electricity needs — nearly equivalent to the power grids of California, Texas and New York combined — making the U.S. the world’s largest consumer of nuclear energy. Yet the U.S. hasn’t built a reactor since 1996 and uranium inventories are dwindling.

Lauded as a mineral savior in the 1940s and then viewed with alarm in the 1980s, the price-per-pound of this member of the Periodic Table of the Elements — which happens to be the base fuel for nuclear power — has quietly crept up to its highest position in two years, which signals confidence that China is serious about building a vast fleet of reactors to meet its 21st century energy demands. But don’t look for the United States to follow up with nearly the same passion, experts say.

Uranium is traded as a commodity in the form of a gently-radioactive powder called yellowcake, which is now selling for a spot price of $62 per pound, according to the Denver consultancy TradeTech.

This price is a rough gauge of the market’s judgment on two key aspects of nuclear power — whether the amount of uranium being mined will be enough to satisfy the short-term needs of utilities, and whether world governments are warming to the concept of using public funds to underwrite reactors over the long haul.

In China’s case, that’s a definite yes. With just 11 working facilities now, the Chinese government has aggressive plans to build a series of 25 “cookie cutter” reactors of a pressurized water design in the next several years. Its nuclear capacity will expand tenfold within the decade.

Chinese state exploration companies have also made audacious plays for new uranium deposits in Africa, where a new mine in the conflict-wracked nation of Niger just turned out its first barrel of yellowcake. Long-term supply deals have also been signed in Kazakhstan, the fastest-growing producer of uranium ore. All of this is helping driving up the price of uranium from a relatively bargain price of $40 per pound following the Sept. 2008 market nosedive.

“Investors and hedge funds are getting interested again, primary because of China,” said Jeff Combs, the president of UxC, a uranium brokerage in Atlanta, Ga. 

But the enthusiasm is more tempered in the U.S., where memories of the debacles at Three Mile Island and Chernobyl make local communities wary, and the regulatory structure is tough enough to make building a new plant both expensive and time-consuming. The rule of thumb is that a utility needs at least seven years of permitting and a $10 billion outlay – a price so stiff that investors won’t come near without a healthy government subsidy.  

“The Chinese have finally come to the market
and have been buying uranium like there’s no tomorrow.”

The Obama administration made a step in that direction last February when it proposed extending $54 billion in loan guarantees for new reactors, kicked off with the backing of two new reactors at the Alvin W. Vogtle Electric Generating Plant near Augusta, Ga. But the U.S. Senate committee trimmed that ambition back to Bush-era subsidy levels last month, allowing only $8 billion — enough for a pilot demonstration, but too paltry to support even a modest atomic expansion.

The U.S. now has a fleet of 103 operating reactors and only one active uranium mill, a level that has remained more-or-less at a plateau since expansion stopped in the mid-1980s amid declining investor interest and dystopian concerns about catastrophic accidents. Industry advocates have been trying in recent years to spark a comeback, calling for a “Nuclear Renaissance” because of new reactor designs that make meltdowns virtually impossible, as well as the fact that fission emits no greenhouse gases.

But the excitement still remains primarily embedded in China, where the Communist government can erect reactors by national policy fiat and with somewhat less cost-sensitivity than in the U.S. The head of China’s National Energy Administration, Zhang Guobao, surprised observers Thursday when he said the nation’s nuclear generation capacity would be at 38 gigawatts within four years, up dramatically from the current ten gigawatts. No private market could support that target.

A perception of dwindling supply is also pushing up the price, according to Curt Steel, a former analyst for UxC who now works as a Vice President of Marketing for Denison Mines.

“Everybody’s been saying for the last fifteen years that there’s a massive inventory overhanging the market,” he said. “That was generally accurate. But now it has finally come to pass that those large inventories have been whittled down. The Chinese have finally come to the market and have been buying uranium like there’s no tomorrow.”

The incipient expiration of a landmark deal with Russia is also creating jitters about supply. Under the Megatons to Megawatts program, the U.S. has been fueling about 20 percent of its nuclear demand with uranium taken from the warheads of old missiles from the Soviet Union and “blended down” to a lower ratio of fissile atoms.

This largely-unheralded deal gave hard currency to Russia in a tight spot, and reduced the number of nuclear weapons in the world by about ten thousand, but Prime Minister Vladimir Putin has said repeatedly he will not renew the agreement after 2013. Russia plans to expand its own nuclear infrastructure by 23 percent in the next decade, according to the World Nuclear Association in London, meaning it will probably also be on a uranium-buying spree.

That global confidence is pushing up the cost of uranium, whose oscillations have historically have had as much to do with government signals of enthusiasm as they do a classic supply-and-demand ratio. The U.S. still is the world’s largest consumer of the radioactive element, but its recent effect on the price needle has been minimal. For worldwide energy brokers, the nation is a sleeping giant.    

“We’re moving there, but we’re not moving as fast as China,” said Joe Kelly, manager of nuclear fuels markets at ICAP, an energy brokerage based in Louisville, Ky. “They have a need to get away from coal. They can’t breathe over there. Their demand for electricity is growing exponentially and there’s just no other solution for them.”

Related Links:
China power sector to boom as oil sector goes slower (Reuters)
New Year high for uranium price (World Nuclear News)