Commodities - Trading Uranium

For those who like their trading radioactive, uranium offers a wild ride. Prices exploded a couple of years ago, then dropped back just as quickly to the $29 level, the boom up to $45. And you thought oil prices were volatile. Nevertheless, prices have been on a steady rise the last two years, and it's no surprise.

Uranium has a number of natural advantages over oil or other energy sources. The fuel produced from uranium lasts for decades and can be recycled for decades more (in the form of plutonium). That, after all, creates one of the pervasive problems in dealing with it - it hangs around so long that disposing of it is a political hot potato.

Nuclear power has by far the best safety record of any large-scale energy generation technology. Oil and chemical refineries can and have exploded, due to incompetence and accident. Controls on the use of nuclear fuel are much more strict, and strictly adhered to, than with conventional fuels.

Though long considered almost evil, or at least generally dangerous, by many in the U.S., nuclear power safely generates 16% of the world's electricity. Both Japan and France have relied heavily on nuclear power for decades, and neither country regrets the decision to use it as a major source of power. France generates 78% of its electricity from nuclear power and has never experienced a serious incident.

More power plants are being built around the world, particularly in Asia. China will soon award an $8 billion contract to build four new plants, on the way to constructing 27 by 2020. India plants to build 17 by 2012, tripling existing capacity. Russia has reduced exports in order to retain fuel for the 25 new plants planned there by 2020.

Most of those plants have not yet secured a long-term supply, suggesting they will have to pay market prices as they near completion.

Even the U.S. may soon see a change in the political winds, where there is a coming together taking place between long-time political foes. Many environmentalists are beginning to see that nuclear power offers one of the best alternatives to continued fossil fuel use, as concerns over global warming heat up. And with the rising price of oil, those political forces may just be reaching a tipping point in favor of nuclear.

At the same time demand is rising supplies remain tight. Commercial stockpiles fell 50% from 1985 to 2003, and mining remains expensive and difficult.

Cameco, an Australian mining company, is one of the world's largest uranium suppliers. It plans to expand production 18% in Canada's MacArthur River mine, currently the world's largest.

Even so, supplies are unlikely to expand enough to meet the growing demand to a point that would suppress the price. Several analysts are expecting supplies to remain tight over the next 10 years. As a result, prices are rising to levels not seen since their peaks in the 1970s and are expected to remain high for quite a while.

Annual demand is roughly 170 million pounds, while annual supply is around 75 million pounds a year. The deficit is made up from supplies stockpiled from the 1970s, the dismantling of Russian nuclear warheads, and other sources. But that supply is dwindling.

Fuel costs are a relatively small cost for power plants, but vital to their operation. They can not afford to run out, since there is no substitute.

All those facts bode well for metals traders who might have an interest in uranium. Note that uranium doesn't trade on the open market, like other metals. Contracts are made privately. But investors interested can buy mining stocks, futures contracts, options, etc just as with any other investment. See your broker for details.

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