Uranium

A Strategic Source of Energy

Marian Radetzki

• Publisher: Routledge
• Year: 2017
• Topic: Business
• eBook ISBN:
  9781351386630
• Subtopic: Business General
• Index: Business

The uranium market is a particularly volatile and unpredictable international commodity market. This book, originally published in 1981, analyses the factors responsible for the price rise and falls of uranium in the 1970s. It includes a comprehensive analysis of the international uranium market from its inception and the conditions of price developments in mineral markets in general. The analysis of the uranium market contained in this book provides valuable insights to all those involved int eh different facets of the nuclear industry, as well as illustrating how policitical decisions with little concern for the ensuing economic implications can create havoc in international commodity markets.

1 THE ISSUES

This book deals with a highly unpredictable and volatile international commodity market. Though the subject coverage is limited to uranium, large parts of the analysis have a more general applicability to international commodity market problems. As will appear from the following, much of the instability experienced in uranium has had its origin in political rather than economic action, although inelasticities in demand and supply, the organisation of the uranium industry and the dominant influence of close substitutes have also contributed to the erratic performance of uranium prices.

The focus is on commercial, as distinct from military, uranium uses. A non-military market for uranium developed in the late 1960s in response to the demand for fuel for the growing number of nuclear reactors coming into use in various countries. From 1968 until the end of 1973, uranium prices remained depressed and relatively stable. Spot-delivery quotations varied within a range of $5.50–7 per lb U₃ O₈,¹ with long-term contract prices executed at roughly corresponding levels.

In 1974, a drastic change began to take place. In an uninterrupted rise, spot prices increased more than sixfold, or from $7 late in 1973 to above $40 in mid-1976; they have remained at this high level until the present. The price development was not limited to spot transactions. Futures prices in contracts signed at different times moved more or less in parallel with the spot price changes.

The price figures given above are in nominal dollars. But even if adjustment is made for inflation, the change was extraordinary. Between 1973 and 1976 the uranium price in constant dollars² increased almost fivefold, and remained at that high level for about two years. In 1978 and 1979, however, there have been substantial falls in the real, as distinct from the nominal, uranium price quotation.

The price history of uranium is conveniently depicted in Chart 1.1. In anticipation of the detailed analysis in Chapter 2, it may be noted that price changes as large and sudden as the one which affected uranium are indeed very rare in the modern history of international commodity markets.

The extreme price performance of uranium provides much of the rationale for writing the present book. A major portion of the following text is devoted to analysing several interrelated factors, which emerged within a short time, and which we see as primarily responsible for the uranium price changes.

Chart 1.1: Uranium Prices, Spot Deliveries, as Reported by NUEXCO Quarterly Averages

Note: ^aCurrent dollars deflated by the general dollar GDP deflator for the entire OECD area. The quarterly GDP deflator data have been obtained through linear approximations of annual figures (see Table 2.3).

In the process of explaining the price movements, the book provides a comprehensive analysis of the international uranium market, from its inception in the late 1960s up to the present. The issues are treated in the following order. The next two chapters set the scene. In Chapter 2 the price systems and price developments in the uranium market are explored in detail. The price movements for major commodities in international trade since 1920 are also studied, in order to substantiate the claim that the 1973–6 uranium price explosion has few, if any, precedents. In Chapter 3 we move back in time and document the circumstances under which uranium mining emerged, blossomed and declined as a result of the fast-growing and then equally fast-declining military demand. This account is a necessary prerequisite for a proper understanding of the depressed state of the uranium industry between 1968 and 1973, which resulted from the speedy curtailment and subsequent discontinuation of military procurement.

Chapter 4 contains a broad-based conventional analysis of the conditions which are normally instrumental in shaping price developments in minerals markets. The analysis includes a survey of consecutive nuclear power growth forecasts and of the ensuing uranium requirements,³ a scrutiny of the adequacy of mineral reserves and production capacities for the satisfaction of current and prospective uranium needs, and a comparison of uranium output at different times with the simultaneous requirements of reactors in operation. It then explores production costs and establishes the price level necessary to attract investments in new production capacity to satisfy future needs. The results of these analyses, supplemented by a survey of price expectations formulated in the early 1970s, suggest that there was nothing in the ordinary market circumstances from which the impending price explosion could be anticipated.

Several of the following chapters detail the set of factors which were jointly responsible for the drastic change in the uranium market. Chapter 5 illuminates how political decisions regarding uranium reprocessing and enrichment contracting contributed to the price rise by boosting demand and locking it at a level above requirements. Chapter 6 considers the impact of the rising oil price on the uranium market. The analysis suggests that the major causal relationship was through the general increase in electricity prices, leading to the emergence of temporary excess profits (quasi rents) in nuclear electricity generation which uranium producers could appropriate. In Chapter 7, after scrutinising the structure of the uranium industry and concluding that it is amenable to monopolistic collusion, we analyse in detail the actual operations of the international uranium cartel from 1973 onwards. Chapter 8 discusses several further factors which also appear to have contributed to the upward move in uranium prices.

The concluding Chapter 9 summarises and synthesises the findings reached in earlier pages. It also discusses the extent to which the uranium experience can be applied to other international commodity markets. Finally, it provides an outlook for the future by considering the circumstances likely to influence the uranium market in coming years.

These, in brief, are the contents of the book. Several issues concerning the nuclear industry in general are not taken up at all or are treated only tangentially. For instance, our analyses of the uranium market are entirely based on the fuel requirements of the light water reactor, and disregard other existing or planned reactor types. Table 1.1 details the expected subdivision of the Western world⁴ nuclear capacity between alternative reactors in 1980 and 2000, and indicates their respective uranium consumption patterns. Given the heavy dominance of the light water reactor through the present century, the limited differences in uranium consumption between most non-breeder reactor types and the unimportance of the breeder through this century, the above simplification does not distort our conclusions in any noticeable way.

Table 1.1: Forecast Distribution among Different Reactor Types and their Respective Uranium Consumption Patterns

	Forecast Capacity in Percentage of Western World Capacity		Annual Requirements of Natural Uranium lb U3 O8 per MWe
	1980	2000
Light water	87	90	440
Graphite gas	4.1	0.2	780
Advanced gas	4.1	0.6	430
Heavy water	4.8	7.6	440
High temp., gas cooled	0	0.6	350
Breeder	0	1.0	5

Source: OECD, Uranium Resources, Production and Demand (OECD, Paris, Dec. 1975 and Dec. 1977).

While elaborating in considerable detail on the sharp reductions in nuclear growth forecasts which have occurred through the 1970s, and on the ensuing consequences for future uranium demand, we do not attempt to provide any account of the factors underlying this change – i.e. the safety problems in nuclear energy and the popular disaffection with nuclear power of recent years – since these issues are discussed adequately elsewhere.⁵

The cost of investment in nuclear reactors, though very important for the nuclear industry, is also not central to our theme, and is therefore discussed only in passing, when the economics of nuclear electricity are compared with those of coal- and petroleum-based electricity generation.

Our analysis focuses on the short, medium and long term, the latter bounded by a time horizon of fifteen to twenty years. We do not aim to comment in detail on the very long term in discussing the sufficiency or otherwise of uranium mineral resources.

There are several general points which it is useful to cover at this stage, even though they will be treated in greater detail later in the text. The information contained in Chart 1.2 may be helpful in this context.

The first clarification aims at providing useful reference figures regarding the global supply of and requirements for uranium. In 1978, Western world uranium output amounted to 45,000 short tons U₃ O₈. At a price of $40/1b this represented a total value of $3,600 million. In 1973, production was only 26,000 short tons, and with a price of $7/1b, the value was no higher than $360 million, i.e. only one-tenth of the 1978 figure. The 1978 requirements of uranium to fuel reactors were estimated at 34,000 short tons, i.e. 12,000 short tons below the production figure in that year. Excessive production has prevailed through the 19...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• List of Charts
• Editorial Statement
• Foreword
• Acknowledgements
• 1. The Issues
• 2. Uranium Prices in Boom and Bust
• 3. The Military Legacy
• 4. The Fundamental Factors of Demand and Supply in the International Uranium Market
• 5. The Politics of Reprocessing and Enrichment
• 6. The Impact of the Oil Crisis
• 7. The International Uranium Cartel
• 8. Other Factors Restraining Supply in the 1973-1980 Period
• 9. Conclusions and Prospects
• Bibliography
• Index