Jeff Combs, president of UxC, is advising U.S. utilities to prioritize domestic uranium production to mitigate risks from Asian competition and potential supply disruptions. Combs forecasts a strong possibility of uranium reaching $50 per pound this year, emphasizing that supply shocks could drastically inflate prices.
Combs describes the current uranium market as having a tight supply/demand balance for the coming years. Procurement for 2007-2009 deliveries faces limited availability, driving prices upward as utilities compete to meet their needs. While most uranium contracts are long-term, extending several years into the future, the responsiveness of supply and the progress of nuclear power expansion will ultimately determine the long-term market dynamics.
Currently, the market favors sellers, with escalating floor prices closely aligned with spot prices and ceiling prices set substantially higher. Many producers prefer market-related contracts, offering floor protection but avoiding fixed prices. Utilities often have little choice but to accept these terms due to immediate procurement needs.
While speculative activity exists, its impact is often overstated. Hedge fund investments since 2004 total around 11 million pounds, with activity decreasing in the current year compared to 2005. Long-term contracts, involving significantly larger volumes, exert greater influence on prices. Base-escalated contracts may approach $50 today, exceeding both spot and long-term prices from earlier in the year.
Combs anticipates that the HEU deal with Russia is unlikely to be renewed given Russia’s robust economy and nuclear power resurgence, although further HEU blending for internal consumption or fuel exports to Russian-supplied reactors is possible. Spot market trading volumes have decreased but could rise again if utilities struggle to secure long-term contracts or if producers increase spot market purchases.
Looking ahead, Combs believes $50 per pound uranium is likely this year, with peak prices potentially in the next two years due to tight supply. Price spikes could reach $60-$70, followed by a correction as new supplies enter the market. The inelasticity of short-term uranium supply and demand creates the potential for explosive price responses.
Combs highlights the vulnerability of uranium supply, with a large portion originating from a few major production centers and HEU. Disruptions at facilities like Olympic Dam, McArthur River, Cigar Lake, Rossing, or Ranger, or issues with the HEU deal, could significantly impact the market. The Cigar Lake delay, while seemingly overlooked, removes a substantial amount of production from an already tight market, potentially prompting increased inventory levels.
To protect their supply chains, U.S. utilities should bolster domestic uranium production while maintaining relationships with major producing countries like Kazakhstan. Encouraging additional supply options and promoting domestic production will reduce market concentration and foster supply diversity. Without these measures, U.S. utilities risk facing significant challenges if supply interruptions occur, particularly given aggressive nuclear expansion in China, India, and Russia. Combs stresses the importance of proactive measures to secure future supplies, rather than relying solely on high prices to solve the problem.