Nuclear Engineering Final Paper

Nuclear Engineering Final Paper - Uranium Commodity Markets...

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Uranium Commodity Markets & the Uranium Industry by Albert Ho Report Compiled: December 4, 2006 ECE 413: Introduction to Nuclear Engineering Cornell University Ithaca, NY 14850
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Uranium Markets Analysis: Background & History Uranium markets are like other commodity markets in that they are subject to market forces that contribute to the day-to-day fluctuation of the spot price of uranium products. These market forces are speculative in nature, but are fundamentally driven by geopolitical events and policies regarding the use of nuclear energy. In the present day, supply lags demand in the face of two major applications of uranium: demand for the product to support the nuclear arms programs of emerging nations, and commercial usage of uranium to fuel nuclear reactors for the generation of electricity. Uranium is unique in the world commodity markets in that it is not exchange traded, but rather only traded through contracts over-the-counter. This means the contracts are negotiated directly between buyers and sellers. The absence of a futures clearinghouse like in other commodity futures traded on, for example, the Chicago Board Options Exchange (CBOE), makes this market very volatile because credit risk is not entirely eliminated in the transactions. Futures contracts on uranium are typically traded over long-term specifications. They typically involve 3-7 years of delivery and the contract can range up to 10 years in length. 1 The underlying uranium content is traded in many different forms: it could be bought in the early stages of enrichment up to a form ready to be loaded into a reactor. Power utility companies buy uranium products in separate stages in order to optimize costs by always targeting the brokers and traders that charge the lowest prices on a particular point in the uranium preparation cycle. Uranium has become a seller’s market, which is a market that has more buyers than sellers, so high prices have come with an excess of demand over supply. A cartel of uranium-producing nations consists of the USA, Russia, UK, Netherlands, Germany and
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France, who operate the largest commercial enrichment plants. They have a virtual monopoly on the global uranium market. Demand for uranium surged after World War 2 because of the nuclear weapons programs of the USA and Russia, driven by deterrence and nuclear arms buildup. Peaking at around $45/lb in 1979-1980, 2 demand fell in the 1980’s over environmental and safety concerns especially in the face of the Three Mile Island and Chernobyl incidents, as well as over the building of hydro-electric power stations that provided alternate sources of safer power. Uranium markets rallied in the 1990’s when supply lagged behind demand, whereas during the 80’s the world demand never kept up with the available nuclear material. Spot prices peaked at around $16.60/lb
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