Why uranium prices soar. Economist Report
The recovery in demand and the precariousness of supply are shaking the uranium market. Here are the causes and consequences according to the Economist
When Russia invaded Ukraine, panic gripped European nuclear experts – civilian ones, that is. Ukraine, where 15 reactors depend on Russia for uranium, rushed to sign an unusually long 12-year deal with Canada.
European utilities, also dependent on Russia, have drawn as much as they can from other contracts. Most exposed were operators in Finland and Eastern Europe who owned Russian-made reactors, which only Russian companies knew how to power. Finding an American rival capable of packing the uranium rods into the hexagonal blocks required by these plants took a year. Now they are looking for the metal needed to restart the atomic Tetris – writesThe Economist .
HOW THE URANIUM TRADE WORKS
This kind of last-minute uranium procurement is very rare, notes WMC's Per Jander, a trader. Utilities typically make deliveries two to three years after signing a contract. This rush is just one example of the war's consequences on a once-quiet market already crushed by rising demand, supply shocks and speculation. In the week of September 18, the spot price of uranium reached $65 a pound, the highest since 2011, data firm UXC reports. At the industry's annual party in London, which this month saw a record 700 delegates attend, some warned the price could reach $100. The two largest producers have run out of supplies until 2027; Some utilities are thought to be low on inventory for 2024.
Only 85,000 tons of uranium are used each year. Compared to 170,000 for niche metals such as cobalt and many millions for industrial metals such as copper. Unlike coal or gas plants, nuclear reactors cost a lot to build but little to operate, so utilities mostly choose to keep them running regardless of, for example, the economic cycle, making fuel demand predictable. This also means that utilities can't afford to run out, which is why they purchase the equipment under long-term contracts.
Most of the supplies come directly from the mines. Canada and Kazakhstan, two reliable exporters, account for 60% of the “primary” supply. A quarter of total global supply comes from “secondary” sources. Spent fuel blocks, replaced every three to four years, are re-enriched and reused. Fuel is also produced by diluting weapons-grade uranium, which contains more than 90% fissile elements, to concentrations of just 3-4%. In the two decades following the Cold War, dilution of just 30 tons per year replaced 10,000 tons of annual mine production. Other supplies are regularly released from stockpiles. America, China, France and Japan have a combined supply worth years of global use, which can be drawn upon when prices are high.
THE FORCES SHAKING THE URANIUM MARKET
This quiet trade is now shaken by two forces. One is the recovery in demand. For years after the Fukushima disaster in 2011, plant closures in Japan, Germany and elsewhere pushed the market into a glut. But the search for steady sources of low-carbon energy and Russia's war in Ukraine have led governments back to nuclear energy, which has emissions on par with wind power and can function even if pipelines shut down. . Around 60 new reactors are under construction, which are expected to add a further 15% to nuclear power generation capacity over the next decade, according to Liberum bank. Small “modular” reactors, which are cheap and easy to build, could increase demand for fuel. The World Nuclear Association, an industry body, predicts they could make up half of France's nuclear capacity by 2040.
Uranium's bright prospects are not lost on financiers. Several exchange-traded funds have been launched in recent years. Sprott Physical Uranium Trust and Yellow Cake, the two largest, have purchased 22,000 tonnes in the past two years, accounting for more than a quarter of annual demand. Both are set for the long term, with no fixed date or target price at which to liquidate their holdings.
Meanwhile, supply appears precarious – the second reason prices have soared. Aside from the initial panic, Russian ores can still be obtained. But a coup in Niger in July put 4% of the mineral supply at risk. Last week Orano, the state-owned French giant, said it had stopped processing the ore due to a lack of essential chemicals. Logistical problems are leading Kazatomprom, the main Kazakh supplier, to ship less uranium than expected (it usually goes through Russia). Cameco, the Canadian leader, recently cut its production forecast by 9% after problems at two mines.
THE CONSEQUENCES
All of this will likely keep the market in deficit next year, as it has been since 2018. However, actual shortages are unlikely to occur. Major utility companies maintain inventories. And the fuel blocks inserted into operating reactors still have one to three years of life left, with a one-year extension possible at limited cost. Most also have the next block ready for use. The risk of exhaustion is therefore more than four years.
This gives time for the offer to react. Cameco and Kazatomprom, which have a lot of spare capacity after cutting production during the dark years of the 2010s, will frown on higher-cost producers gaining market share. Liberum's Tom Price estimates they could add another 15-20% to global supply in just 12-18 months. If this fails to tame the market, a sustained increase in prices will incentivize the opening of new mines. Jonathan Hinze of UXC believes that a spot price of $70-$80 would be sufficient to get many projects started. Supply problems are also unlikely to last long. Niger's junta has a problem with France, but not with China, which operates other mines in the country. If all else fails, Kazatomprom can always decide to export the uranium by plane.
The most likely outcome is therefore high prices for a few years, with the return of a surplus by the middle of the decade. No one expects a repeat of 2007, when the first uranium fund's purchases and floods at large mines pushed the spot price above $135 a pound. However, utilities have plenty of room to absorb price shocks. Because uranium is heavily processed, the raw materials are worth less than half the finished fuel, which in itself represents only 10% of a plant's operating costs (versus 70% for natural gas). The rally is more important to speculators than the cost of what comes out of your outlet.
(Extract from the eprcomunicazione press review)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/aumento-prezzi-uranio-perche/ on Sat, 23 Sep 2023 05:26:29 +0000.