Uranium Prices Fall with Those of Other Commodities

Kennedy Maize

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There is potentially good news for nuclear fuel buyers and developers of new nuclear power plants this year: Uranium price increases, which soared in 2006 and 2007, have come back to earth, according to TradeTech, which tracks uranium spot market prices. What’s more, the outlook for 2009 is for even lower uranium prices, meaning lower prices for finished, reactor-grade enriched nuclear fuel. The decline in uranium prices followed the well-known decline in crude oil prices over the period following the summer of 2008.

Denver-based Trade Tech said the price for uranium oxide (U3O8) tumbled 40% in 2008, after rising sharply and consistently in recent years. TradeTech’s uranium price index peaked early in 2008 at $89/pound. By mid-October last year, said TradeTech in a news release, prices had fallen to as low as $45/pound before settling at around $52/pound as 2008 closed. Trade Tech reported a spot market price of $50/pound at the end of January this year.

In a news release, TradeTech—the successor of NUEXCO Information Services, CONCORD Information Services, and CONCORD Trading Co.—said the uranium spot price collapse was the result of sellers seeking to cash out earlier positions and hedge funds closing out positions in light of the collapse in worldwide commodities markets. “This sell-off created downward pressure on the spot price and forced other sellers to cut their prices to remain competitive in a market where demand has remained primarily discretionary and extremely price sensitive,” said Treva Klingbiel, TradeTech president.

Did the run-up in spot uranium prices, which quadrupled between 2004 and 2007, reflect market forces? Probably not, according to Stephen Dubner, a New York Times journalist and proprietor of the “Freakonomics” blog at nytimes.com. A year ago, as nuclear fuel prices began to fold, Dubner wrote that few of the conventional Malthusian or supply-and-demand analyses explained the run-up of nuclear fuel prices. He attributed the price spike to a depletion of the supply of uranium accumulated in the 1980s in anticipation of new nuclear plant construction. But he largely threw up his hands in dismay and said he really didn’t understand the fundamentals of the market.

A Mysterious Market

From 2004 to 2008, uranium prices lit up the sky like a rocket in flight, soaring to $140/lb before collapsing to current levels. Why? There was no fundamental change in market conditions. Nobody was building new nukes, and there was no obvious demand for new nuclear fuel that hadn’t already been predicted in the market.

Some experts say the uranium market was soft until about 2004 because of a glut of enriched uranium on world markets. That was the result of the collapse of the nuclear industry’s new construction pipeline in the 1980s and the dumping into the market of nuclear fuel that had been stockpiled in anticipation of the new plants’ operation. A secondary market for nuclear fuel developed as companies such as NUEXCO and SWUCO arose to buy and resell surplus enriched uranium. Russian nuclear fuel also found itself trading on international markets.

But when those supplies of enriched uranium fuel dried up earlier this century, the price of un-enriched uranium feedstock began to rise dramatically in 2006 and 2007. Then the world economy began its rapid collapse, and demand for uranium slumped. Sounds plausible, but the price run-up remains a mystery, as does much concerning energy economics in the world today.

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