By Dave Brown – Exclusive to Uranium Investing News
The first decade of the millennium ended with uranium spot market prices remaining unchanged for a third week after trading in the spot market slowed as traders went on seasonal holidays. Ux Consulting Company reported uranium-oxide concentrate for immediate delivery traded at $62.50 a pound in the week to December 31, an increase of 4.2 percent from the start of the month. The 40 percent surge in spot prices in 2010 was the biggest atomic expansion since the decade after the 1970s oil crisis primarily triggered by investment from China and India to reduce air pollution and power their economies.
Uranium producers in Canada and Australia are anticipating global demand to increase as countries expand their use of nuclear power to curb emissions from burning fossil fuels, particularly coal. Trading in uranium futures is expected to climb this year from 2010, especially if utilities raise their participation in the market. Last year, more than 25,000 contracts involving more than 6 million pounds of concentrate were traded representing an increase of almost five times the previous year’s total.
Hedge funds and institutional investors who returned to the market last year are expected to increase trading volumes in the physical market this year. “Activity remains slow and few participants have shown much interest in completing transactions,” UxC said. “As market participants come back from the holidays, we will see brokers’ forward offerings fill out with more bids and offers.” Uranium output from mines in Kazakhstan, which reached 10 million pounds in 2010, is expected to increase again this year. Additionally, the United Kingdom (UK) may order a new reactor and a Middle Eastern country is expected to make a “serious push” to go nuclear.
Last month the UK unveiled its longer term energy market reforms plans, predicting that the new package of measures will lead to a huge increase in investment for renewable, nuclear and carbon capture and storage (CCS) projects; however, the proposals stop short of providing precise details on the future price of carbon emissions and the regulations governing fossil power plants, that will ultimately be important for investors to determine the economic feasibility of low-carbon projects.
Currently, the UK has 19 reactors operating which generates about 18 percent of domestic electricity and all but one of these will be retired by 2023. In the late 1990s, nuclear power plants contributed around 25 percent of total annual electricity generation in the UK, but this has gradually declined as old plants have been shut down and age related problems have affected plant availability.
Potential Chinese Technological Innovation
China claims it has developed technology to reprocess spent nuclear fuel after working on this process for more than two decades. If these claims prove to be accurate, it could expose a potential negative implication for uranium demand, because China will be able to extract more energy from a given amount of uranium than it previously could. Investors may take some cautionary note of the release as the country has demonstrated strategic business acumen in other resource market positioning and foreign currency exchange rate policies.
The new technology involves reusing irradiated nuclear fuel and was reportedly developed at facility No 404 operated by the state-controlled China National Nuclear Corp (CNNC). According to the report the breakthrough could extend the expected life cycle of China’s uranium resources to 3,000 years from what had earlier been regarded as a 50 to 70 year supply.
China has the highest number of planned and proposed new nuclear reactors in the world with 157. Totaling the number of planned and proposed new nuclear reactors from other top 5 stakeholders still fall short of China’s potential commitment, including expectations from India 58; Russia 44; USA 31; and Ukraine 22. The CNNC is expected to spend $117.6 billion on the development of nuclear industry by 2020. China’s uranium demand is expected to reach 20,000 tonnes a year by 2020, with the nation expected to produce domestically 2,400 tonnes a year by that time.
BMO Capital Markets analyst Edward Sterck suggested the technology could reduce future uranium demand and potentially weigh on prices. However, BMO does not anticipate significant changes to near-term projections as roll out of the technology is likely to take a number of years.