Published: Tuesday, June 24, 2008 The uranium industry's worst year is about to collide with a nuclear construction program in India and China that rivals the ones undertaken during the oil crisis of the 1970s.
The result is likely to be a 58 per cent rebound in uranium to $90 a pound from $57 now, according to Goldman Sachs JBWere Pty and Rio Tinto Group, the third-biggest mining company.
The price of uranium plunged 57 per cent in the past year as an earthquake damaged a Japanese nuclear plant that's the world's largest and faults shut down reactors in the U.K. and Germany.
Plans for India and China to end electricity shortages will ripple from northwest Canada to the Australian outback and the flatlands of Kazakhstan, the primary sources of uranium. India will start up three reactors this year, with another six due in 2009, in India, China, Russia, Canada and Japan. Uranium demand worldwide will rise as fast as oil this year, or 0.8 per cent, Deutsche Bank AG forecasts.
"The first wave of growth is going to come from the emerging economies," said John Wong, fund manager with CQS UK LLP in London, which has $10 billion under management, including $150 million of uranium investments. "People are starting to look at coal, at gas, at oil and seeing the energy prices go up, they wonder about uranium."
Because malfunctions shut reactors in Japan, the U.K. and Germany, nuclear power production and uranium use dropped two per cent in 2007, only the third time consumption has fallen since the 1970s, according to data compiled by BP Plc, Europe's second-largest oil company by market value. Prices are so low that some uranium mines are close to being unprofitable, says Merrill Lynch & Co., the third-largest U.S. securities firm.
Prices will have to increase if uranium production is to meet the rising demand, said Kevin Smith, head of uranium trading at New York-based commodities brokerage Traxys.
Saskatoon-based Cameco Corp., the world's largest uranium producer, reported it spent a total of about $45 Cdn to produce a pound of uranium in the first quarter, compared with its average realized price of $40.85 Cdn a pound. While Cameco, which also mines gold, still posted a profit for the quarter, lower uranium prices are a problem for other companies developing new mines, according to Smith.
"There are a lot of production projects that are feeling the pain," Smith says.
Uranium demand was 66,500 metric tons last year, according to data from Denver-based consultant TradeTech LLP. Consumption may jump 55 per cent to 102,000 tons by 2020, forecasts Macquarie Group Ltd., Australia's biggest securities firm.
Uranium use now is 69 per cent greater than the 39,429 tons that was mined in 2006, the most recent data shows. The balance comes from inventories and decommissioned weapons. A Russian accord to export fuel recovered from warheads to the U.S. expires in 2013.
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