Uranium prices to hit rock bottom this year

With the price of uranium down about 25% from levels reached before the Japanese earthquake and nuclear disaster in Japan last year, the last thing the industry wanted to hear was the latest edition of the Scotiabank Commodity Price Index: prices of the nuclear fuel may well bottom in 2012.

Currently, spot uranium rates remain at low ebb of $52 per pound, well below the $66.50 level prior to Japan’s catastrophe, but Scotiabank economist Patricia Mohr predicts it is only going to get worse before prices start recovering in 2013.

One of the reasons for the predicted upturn, says Mohr, is the expiry of the Russia-U.S. highly enriched uranium (HEU) agreement, which will remove 24 million pounds from Western markets. In fact, term contract pricing already appears to be picking up, with the market anticipating prices at the $70 level later this decade.

“Demand for uranium concentrates (U3O3) could grow from 173 million pounds to 225 million by 2020 (3.3% per annum), with significant new mine development required at higher capital costs,” Mohr says.

She also notes that Japan’s Prime Minister “favours a relatively quick restart of Japan’s nuclear power,” as a result of high costs to the economy and industry of imported oil, LNG and coal, adding that “high electricity prices and shortages may trigger a shift in manufacturing capability overseas.”

China may help uranium prices to climb, as well; construction of a new nuclear reactor is expected to resume in China during the second half of 2012 now that Beijing has completed its nuclear safety review. “In the United States, the Obama Administration remains committed to nuclear energy, though there is stepped-up competition from natural-gas fired power plants,” Mohr said.

Commodity prices in general didn’t do well, according to the report, registering their fifth consecutive monthly decline on the index, down 2.3% in April from a month earlier. The index has fallen more than 15% from its near-term peak in April 2011, as slowing growth in China and economic malaise in Europe weigh on markets.

The metals and minerals component of the index slipped 3.1%, as falling gold prices more than offset slight gains in uranium, iron ore and cobalt.

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