Uranium was all the rage during the last mining boom, when supply shortages spurred investors to drive up the price to record highs.
Instead, in a repeat of a uranium runup in the late 1970s, the hype proved overblown, sending prices down sharply and leaving a glut of the silvery element on the market.
Now, another round of uranium excitement is building as producers, led by such giants as Saskatchewan-based Cameco Corp., are hoping a major nuclear-energy push in places such as China and India will kick-start demand and put an end to three years of falling prices.
Russia also has its own plans for nuclear power domination, which experts say could bring some much-needed structure to a market that has been languishing from oversupply.
That may also help prevent another repeat of the boom-bust cycle, as investors are expected to consider more carefully the latest hype surrounding the radioactive metal.
The result is a new phase for the uranium industry, driven largely by government demand for the carbon-free energy source to fuel their nuclear power expansion programs.
“There is a big structural change occurring in the uranium market,” said Thomas Neff, a physicist and uranium industry analyst at the Massachusetts Institute of Technology. “New players are coming in, taking a more aggressive approach.”
China is leading the current nuclear renaissance by ramping up its nuclear reactor base, but also buying unprecedented amounts of uranium.
The country bought more than 5,000 tonnes of uranium last year, which is more than twice the 2,000 tonnes it consumes, taking advantage of depressed prices to build stockpiles to feed its reactors.
Still, the increased buying hasn’t driven up prices, which have been trading just above $40 (U.S.) a pound since the start of the year, well off the peak of $136 in mid-2007.
In fact, many analysts have lowered their price forecast for this year because of the persistent oversupply, which is blamed on rampant production in Kazakhstan, the world’s largest uranium producer.
“Despite the low spot and term prices, uranium producers have shown almost no discipline by reducing current or planned output,” RBC Dominion Securities Inc. said in a recent report.
Despite falling uranium prices, worldwide spending on exploration and mine development grew 133 per cent to $1.6-billion in 2008 from 2006, according to a recently released biennial report from the Nuclear Energy Agency and the International Atomic Energy Agency.
Scarcity of the resource is not expected to be an issue, even with rising demand.
The report forecasts uranium demand to grow to between 87,370 and 138,165 tonnes a year by 2035 from 66,500 tonnes currently.
“Even in the high-growth scenario to 2035, less than half of the identified resources described in this [report] would be consumed,” the report said.
It also said a “strong market” will be required to develop the resources to meet the demand. Right now, uranium prices are considered too low for many producers to go ahead with new projects as they did when prices spiked in 2006-07.
Some see that market strength coming from Russia, which has moved more aggressively into the uranium space.
Not only does Russia have big plans to expand its fleet of nuclear reactors, but the country has taken a controlling stake in Canadian producer Uranium One to help it buy more uranium assets around the world. Russia also recently signed deals to secure uranium from Namibia and Australia.
“I think the laws of economics dictate uranium prices have to go higher,” said Robert Mitchell of investment firm Adit Capital Management LLC in Oregon. “Russia will become a real world power in price formation for uranium.”
