Baltimore, MD–The spot price for uranium has dropped recently to $130/lb. It’s been over six years since we’ve seen the spot price drop successively, does this signify the end of uranium?
"Look’s like uranium’s run is over?"
That was the first thing I heard as I walked into work the other day. Naturally, he was referring to the drop of uranium’s spot price over the last few weeks. I wasn’t sure if he was serious, and it sounded as if it was a huge surprise.
The thing, however, is that we’ve been expecting this for some time now.
A fall in the spot price for U3O8 was inevitable. To be honest, I thought it would’ve come much sooner. Think about it. Uranium’s price has grown by leaps and bounds for the last few years. We’re talking about a 200% increase since last July’s price of $45/lb.
After I heard the question that morning, the first thing I did was show him this chart:
I’m sure many people were expecting this to come at the beginning of 2007, except the price continued pushing forward. So let’s take a look at why uranium fell again. More importantly, let’s see where it’s headed.
The Inevitable Correction
Over the last few weeks, there has been a downward pressure on spot prices. You see, uranium sellers have been more willing to drop their prices lately. Let’s not forget how well they’ve done. Prices have soared over 1200% from 2004’s spot price around $10 per pound.
But what exactly led to the exorbitant prices?
Obviously there was a major disruption to supply when Cameco’s Cigar Lake flooded last October. That project was estimated to supply 10% of the world’s uranium by 2010.
The second major blow came early in 2007, when Australia’s Ranger mine was forced to shut down briefly due to flooding that resulted from a cyclone. Ranger was another huge mine, making up 10% of the world’s uranium production.
These two events helped the spot price surge. As I’ve said before, it was inevitable that the spot price makes a slight correction. But a little break doesn’t mean it’s all over, because we can still remain bullish in the long term.
Our Fossil Fuel Burden
Over the next ten years, the need for uranium is going to rise dramatically nuclear energy.
According to the EIA, our electricity demand will almost double by 2030. Considering the world’s population by then is estimated to be over 8 billion people, I think the EIA’s numbers are still too conservative. The simple fact is that nuclear energy might be the only large scale energy source capable of meeting our future electricity demand.
Most of my readers are aware of Canada’s natural gas crisis. I’m also sure they understand the importance that Canadian oil sands will have for the U.S. over the next five years. The problem is that it takes a massive amount of natural gas to extract the oil from the bitumen.
One of the downsides to oil sands has always been its operating costs. And those costs will increase as Canadian natural gas production plummets. In fact, natural gas accounts for nearly 60% of the cost for oil sands extraction. Nuclear energy provides a cheaper way to extract the oil. Many oil sands producers are looking to operate on nuclear power in the next ten years.
It makes sense, too, because the energy in uranium is staggering. A tiny piece of uranium about the size of your fingertip holds the same amount of energy has 17,000 cubic feet of natural gas, 1,780 pounds of coal or even 149 gallons of oil. Talk about getting a bang for your buck!
Granted, there’s still a large number of hurdles, but I think we’ll see them overcome over the next few years. No matter how long the latest correction lasts, I think the long term demand for uranium remains strong. The is exactly the trend my readers have been taking advantage of, it might be time for you to check it out.
Until next time,