Will a Bump in Prices Lead to a Nuclear Renaissance?

on November 25, 2014 at 12:00 PM

China To Build 30 Nuclear Plants By 2020

In recent months, spot prices for uranium have rebounded. It’s a welcome relief to uranium miners, who have dealt with plunging prices since 2007 (and again after the tsunami and subsequent nuclear disaster in Fukushima, Japan). The rise in prices hasn’t been enough to propel a renaissance in the uranium mining industry, but some companies have been quietly building up reserves in anticipation of a strengthening market.

Growing Markets

The bump in spot prices is attributed to growing demand in Asia. Japan is on the brink of restarting two of its nuclear plants, after the Sendai Nuclear Station received approval to resume operations earlier in the month. Industry experts think this signals that more of the country’s 48 idled plants will eventually come back online. And neighboring China is throttling ahead with its own nuclear expansion plans.

Since Fukushima, prices for uranium, the fuel source for nuclear power plants fell rapidly. At their high point in 2007, spot prices reached $138 per pound for U3O8. Prices dropped to $28 per pound this past summer but have slowly rebounded to the mid $40s range. Earlier this month, spot prices reached $44 per pound, the highest level since September 2012, according to industry analyst TradeTech. Still, long-term prices haven’t rebounded in a similar fashion, according to Edward Kee, founder of the Washington, DC based Nuclear Economics Consulting Group. 

Denver-based uranium mining company Energy Fuels thinks there’s a growing demand for uranium. “Nuclear energy is a growth industry when you look at the number of reactors that are existing, under construction and in the future,’ said Steve Antony, CEO of the company. Growing demand for the fuel, in part brought on by the news that Japan will restart some of its reactor, is helping to support higher prices. Longer-term, the industry will be buoyed by a growing Chinese fleet. China gets just 2% of its electricity from nuclear power (up from 1% a few years ago), but plans to get 5% by 2020.

Kee thinks that utilities are also strategic in their buying patterns, increasing their spot purchases now before the prices rise even more. This is supported by industry watcher TradeTech’s President Treva E. Klingbiel “Although buying interest from financial entities and utilities is expected to increase before year end, the majority of current spot market demand remains largely discretionary.” Other reports credit the end of many long-term contracts.

Rising prices aren’t high enough to support additional production needed with an expanding Asian fleet, according to Energy Fuels. Prices below $65-$75 per pound won’t encourage new production, according to Antony. Even baseline production, needed to sustain the global market, is around $50 per pound. The “Selected Junior Cost Curve,” published by industry analyst TradeTech “indicates that a market price increase from US$30 to $45 per pound U3O8 (uranium oxide) would potentially cover an additional 15 million pounds U3O8 (without an incentive premium),” said Klingbiel.

Production in the US has declined steadily since the late 1970s and Energy Fuels says much of the production is now in unstable regions in Africa and South Asia. Increased production and new mines are essential to keeping plants online, according to Antony. Looking 10-20 years out, Kee disagrees, saying “There’s going to be a drop in nuclear fuel demand from retirement of existing nuclear power plants in the US and Europe, there may not be enough new construction, even with Chinese fleet build, to make up for that.”According to the World Nuclear Association, 71 new nuclear plants are under construction.

While low prices have consolidated the market as many uranium miners operate in the red, it hasn’t been bad for all producers. Energy Fuels has taken advantage of the low prices to acquire more mines. Long-term contracts have helped keep the company profitable while others flounder; according to the company’s third quarter reports, they expect to realize $57.45 per pound in 2015. As the largest conventional producer in the US, Energy Fuels is positioned to take advantage of growing demand and rising prices. While Antony says most mines take years to get into production, “we can expand our production, our annual production, faster than any other company.” 

An Environmental Alternative?

Some prominent environmentalists have started backing nuclear as part of the transition to a low-carbon economy. But for those hoping the EPA’s plans to limit carbon emissions might help fuel the nuclear renaissance, Kee thinks that’s unlikely. “The proposed EPA carbon rule really can’t do too much and it won’t do very much for nuclear… New nuclear in the US would require a lot of other things, including much higher gas prices,” said Kee. Still, a growing call for low-carbon sources of electricity shouldn’t hurt.