February 16, 2011 7:01 pm

Uranium forecast to hit new highs

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The price of uranium, the fuel for nuclear reactors, will jump to a record high as surging demand from China stimulates a decade-long bull market, according to forecasts from CRU, a leading commodities consultancy.

Uranium has rallied 75 per cent over the past eight months, with the most commonly-traded form at $72.25 a pound this week, down slightly from the 35-month high of $73 reached at the start of February.

But Philip Macoun and Ian Hiscock of CRU forecast that demand for the nuclear fuel would outstrip supply every year for the next decade, leading to price spikes that could push nominal prices above the record $136 set during a spike in 2007.

“Uranium has experienced decades of low investment and low prices,” said Mr Hiscock. “We’re now looking at a period of very high activity for the nuclear power market and for uranium over the next five years.” Prices are likely to peak in 2015-17, the consultancy said, predicting an average price of $112 a pound in 2017.

“That’s when you’re going to see the impact at its peak from all the Chinese reactors under construction and supply issues are going to be most difficult,” Mr Macoun said. “You only need a problem at one or two of the major projects under development and you could get a very sharp run up in prices.”

Chart: Uranium price

China is planning to construct as many as 187 nuclear reactors in addition to the 13 it already has, according to the World Nuclear Association. CRU said Chinese demand for uranium would quadruple in the next 10 years and by 2030 the country was expected to surpass the US as the world’s largest consumer of uranium. Traditionally, uranium demand has been concentrated in the US, France and Japan.

Supply will struggle to keep pace with the growth in demand after years of underinvestment in new mines. The trend will be exacerbated by falling supply from secondary sources, such as government stockpiles or decommissioned Soviet-era warheads, which accounted for 26 per cent of total uranium supply in 2010 but which will provide just 13 per cent in 2020, CRU said. The bullish forecasts bode well for investors, who have returned to uranium in recent months, as well as the top uranium miners, which include Cameco, Areva, Rio Tinto, Kazatoprom and ARMZ.

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