Jeff Combs, president of UxC, is urging U.S. utilities to prioritize domestic uranium production amidst growing international competition and potential supply disruptions. Combs highlights the current tight supply and demand dynamics in the uranium market, particularly for deliveries in the coming years. He notes that utilities seeking uranium for near-term needs face limited availability, leading to rising prices. Most uranium contracts are term-based, requiring utilities to secure supply years in advance. Combs suggests that by the time current supply gaps are filled, the market may overcorrect depending on nuclear power expansion and the status of the HEU deal.
Combs describes the current market as heavily favoring sellers, with escalating floor prices and potentially unlimited ceiling prices. Producers are increasingly favoring market-related contracts with floor protection. Utilities, needing to secure immediate supply, often have little choice but to accept these terms. While speculative activity exists, Combs believes its impact is often overstated. Long-term contract prices, driven by tight supply and demand, exert more influence than short-term speculation.
Regarding the HEU deal with Russia, Combs considers renewal unlikely given Russia’s improved economic standing and growing nuclear power sector. He suggests any future HEU blending would likely be for internal Russian consumption or for countries importing Russian-supplied reactors. Spot market trading volume has decreased since 2005, stabilizing to pre-boom levels. Future spot market activity will depend on utilities securing long-term contracts and potential spot market purchases by producers.
Combs anticipates uranium prices reaching $50 per pound in the near term, potentially higher in the next few years due to peak supply tightness. He forecasts potential price spikes, possibly reaching $60-$70 per pound, before correcting. Such high prices are unsustainable long-term. Utilities currently struggle to secure uranium for the 2007-2009 period, potentially due to expansion delays among newer producers. This situation creates conditions for a price correction once more supply becomes available. The short-term inelasticity of uranium supply and demand contributes to explosive price responses.
Combs identifies potential market shocks, including problems at major production centers like Olympic Dam, McArthur River, and Cigar Lake, as well as disruptions to the HEU deal. The Cigar Lake delay, while seemingly overlooked, removes significant production from an already tight market. He advises U.S. utilities to support domestic uranium production while maintaining or developing supply channels in countries like Kazakhstan. Diversifying supply sources is critical given the current market concentration.
Combs cautions that U.S. utilities risk facing supply shortages if they fail to proactively secure future supplies. He warns that aggressive nuclear expansion in China, India, and Russia could exacerbate price volatility. He questions whether current high prices will solve the supply problem or merely reflect a severe deficit. He emphasizes the need for utilities to proactively secure future supplies, rather than relying on market forces alone.