The Kazakh crisis is only one threat hanging over the uranium market

kAZAKHSTAN IS OFTEN called the Saudi Arabia of uranium. Its market share, with more than 40% of the world’s nuclear fuel, is not far from the oil market share of the Organization of Petroleum Exporting Countries and Russia combined. So when unrest, followed by harsh repression, shook the country early this month, buyers of the metal shuddered. On January 5 alone, spot prices for uranium rose 8%, to $45 a pound, according to youXC, a data provider. Now that the protests have been thwarted, the market has calmed down. Nevertheless, the commodity, often referred to as “yellowcake”, looks set to face a turbulent decade.

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The immediate effects of the unrest in Kazakhstan may be limited. Although the protests took place far away from uranium-producing regions, a small decline in global production is nevertheless likely. To extract uranium, Kazakhstan uses a method that involves pumping acid into the ground to dissolve the ore, recover the solution, and then use chemicals to separate the metal. Disruptions in the transmission of connections and equipment, due to stranded trains or communication problems, may have delayed operations.

A possible shortage does not matter much for the time being. Large users of uranium, such as China and France, which are major users of nuclear fuel, have stocks for several years. The most vulnerable utilities could borrow from foreign counterparts in the event of immediate shortages, believes Toktar Turbay of CRU, a consultancy. Most of them buy nuclear fuel using long-term contracts that largely protect them from short-term jumps in the spot price. All this creates a buffer against a squeeze.

Still, events in Kazakhstan, which for decades was the world’s most stable uranium supplier, may cause buyers to be wary of the risk of relying too much on a single source. One day the Kazakh government may fall or state assets will be attacked (Kazatomprom, the country’s sole uranium producer, is 75% state-owned). Some consumers therefore want to diversify their sources of supply. Since Kazakhstan is by far the cheapest producer, a premium has to be paid.

An increase in aggregate demand could push prices up further. From Belarus to Bangladesh, many emerging markets are going nuclear to help them decarbonise. China plans 150 new reactors over the next 15 years. Even in the West, which has long been ambivalent about nuclear energy, attitudes could change. The European Commission plans to classify nuclear energy as green in its investor “taxonomy”, which could spend money on new projects. NuScale, the first company to launch small, modular reactors to be approved by US regulators, is preparing to go public (via a merger with a special acquisition company).

In the short term, supply may not be able to rise fast enough to satisfy the increased appetite for the metal, further supporting prices. New mines are planned in Africa and America, but they require a price of at least $50-60 per pound of uranium to be profitable. If demand is to grow by 2% per year between now and 2030 — a conservative estimate — then all those projects must be up and running, says Tim Bergin of Calderwood Capital, a hedge fund. That may not be realistic. One of those mines, in Canada, is under a lake; another involves freezing the ground up to 400 meters below the surface. The price of nuclear fuel can become more and more combustible.

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This article appeared in the Finance & Economics section of the print edition under the headline “Atom and Abroad”

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