Uranium Prices Tumble on Japan-fuelled Uncertainty

Financial Times
March 15, 2011

The cost of uranium is a barometer of the popularity of the nuclear power industry. And as the esteem in atomic energy now plunges, so it is the price of the commodity.

In 2007-08, as oil prices soared towards an all-time high, the nuclear industry saw a renaissance that lifted the price of uranium to a record of $136 a pound.

Uranium prices fell sharply afterwards on the back of fresh supplies and the drop in oil prices during the global financial crisis. But even so, prices were at historically high levels. The most commonly traded form of uranium rose last month to a 35-month high of $73 a pound, sharply higher than the $20 of the early 2000s.

But as the popularity of the nuclear industry comes into question following Japan’s atomic crisis, prices have moved sharply lower. In the thinly traded spot market, uranium plunged on Monday by 10 per cent to $61.49 a pound, according to MF Global, a broker. Some analysts see prices falling a further 20 per cent in the next few weeks and months, dragging down miners such as Cameco of Canada – whose shares fell 12.7 per cent in Toronto on Monday – and Areva of France – down 9.6 per cent in Paris. Shares in Uranium One, Canada’s second-largest producer, tumbled almost 28 per cent on Monday. Rio Tinto and BHP Billiton, two of the world’s largest miners by market capitalisation, are also big uranium producers.

Is the drop justified? For sure, demand is going to be lower this year and potentially next year. Japan accounts for almost 10 per cent of global uranium consumption and a fifth of the country’s nuclear power plants are down. Some of the reactors are unlikely to restart after suffering significant damage. Worse, Tokyo is likely to order stoppages at unaffected plants this year for security checks, further reducing consumption.

More broadly, blanket coverage of the nuclear crisis in the west is set to catalyse public opposition against the extension of the life of old plants – some of them about 40 years old – and the building of new reactors. The rosy forecasts of dozens of new reactors in Europe in the next two decades are unlikely to come to fruition. Popular opposition does not derail the plans for new reactors, but construction is likely to be delayed, in some cases significantly, as policymakers demand more safety.

As such, the uranium market is unlikely to move into a deficit over the next five years, as some in the industry had expected even before the Japan crisis. Supplies could be more plentiful and prices much lower. Talk about a return to $100 a pound, common before the earthquake in Japan, now appears unlikely to materialise as the renaissance of the nuclear industry in western industrialised countries fades away.

The key for the price of uranium is not in Europe or the US, however. As in many other commodities markets, developing countries such as China will be far more important. Beijing plans to construct as many as 187 reactors to add to its exisiting 13, according to the World Nuclear Association. CRU, a leading commodities consultancy, said in a comprehensive report published before the Japanese earthquake that Chinese demand for uranium would quadruple in the next decade. By 2030, China will surpass the US as the world’s largest consumer. Traditionally, uranium demand has been concentrated in the US, France and Japan.

Jerry Grandey, Cameco chief executive, tried to convey that sentiment on a hastily arranged conference call late on Monday as the share price of his company plunged. “Some people have questioned whether the nuclear renaissance will survive this natural disaster,” he said. “Growth in nuclear capacity in China, India, Korea and elsewhere … adds tremendous momentum and we expect it will continue.”

He may be right over the long term, but in the short term, investors are likely to vote with their feet and continue selling uranium – and the miners that produce it.