Uranium Prices Set to Surge Long-term

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Wednesday, September 24th, 2014
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As the NSW government encourages exploration of the state’s uranium reserves, analysts point out that the long-term outlook for prices remains rosy despite the post-Fukushima plunge.

With the Australian government taking steps to expand domestic uranium mining, questions have arisen not just over the element’s safety and environmental impact, but also its long-term economic viability in the wake of a bottoming out of global prices since the Fukushima disaster.

Industry experts believe that while uranium prices may remain tepid in the short-term, they are set to flourish by the end of the decade, and that surge is expected to last as demand for the radioactive fuel rises in emerging giant such as China and India.

Ian Hiscock of commodities consultancy CRU says that while uranium prices are unlikely to see pronounced growth over the next few years, demand could double over the next two decades as developing economies, and China in particular, turn to nuclear power as a non-polluting carbon-free energy source.

Ian Hiscock

Ian Hiscock

The development of nuclear power has been severely hampered in advanced economies by the 2011 Fukushima disaster, which has reignited concerns over the safety of using radioactive materials for electricity generation purposes.

These fears have compelled Japan and large parts of Europe to shelve their nuclear power programs, resulting in a halving of uranium prices since the Fukushima disaster.

Hiscock believes, however, that while the fate of nuclear power programs in OECD nations may have been sealed, its rising popularity in emerging economies will serve to bolster demand for uranium over the long-term.

This is particularly the case for China, which, as evidenced by the country’s recent ban on low-grade coal, is desperate to remedy its urban smog problem and transition away from pollution-heavy fossil fuels to cleaner forms of energy.

While China is making major strides in the area of renewable energies such as solar and wind power, nuclear power may provide the most practicable, large-scale form of non-polluting zero-carbon electricity generation for the foreseeable future, given the immense energy needs of the country’s growing economy.

Acutely aware of this potential, Beijing has launched ambitious plans to expand its nuclear energy program, seeking to at least quadruple capacity by 2020 according to data from the World Nuclear Association.

In addition to the support given to uranium prices by demand from emerging economies, another factor serving to buoy their levels for sellers is the fact that nuclear power utilities usually procure fuel using long-term contracts in order to shore up supply access.

Because there are relatively few uranium suppliers, nuclear power companies use long-term contracts that grant them secure access to radioactive fuel in exchange for steady prices.

While the contract prices shift in response to changes in spot prices, it is these long-term contracts that have enabled uranium miners to remain profitable despite the precipitous drop in spot prices following the Fukushima disaster.

The relatively sanguine outlook for price levels over the long-term should favour the development of Australia’s uranium mining in upcoming years following measures by government to enable the sector’s growth.

NSW resources and energy minister Anthony Roberts recently gave six companies the opportunity to apply for uranium exploitation licenses, in a move which could soon bring the state  closer to is first uranium mine.

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