The Kazakh crisis is just a threat to the uranium market

KAZAKHSTAN IS OFTEN called Saudi Arabia uranium. Indeed, its market share, at more than 40% of the world’s nuclear fuel, is not far from the oil market share of the Organization of the Petroleum Exporting Countries and Russia combined. So when unrest followed by severe repression rocked the country earlier this month, buyers of the metal shuddered. Spot uranium prices jumped 8% on Jan.5 alone, to $ 45 a pound, according to UXVS, a data provider. With the protests now quashed, the market has taken hold. Nonetheless, the merchandise, often dubbed “yellowcake,” looks doomed to a checkered decade.

The immediate impact of the Kazakh unrest may be limited. Although the protests took place far from uranium-producing regions, a slight drop in global production is nonetheless likely. To mine 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 shipment of compounds and equipment, due to blocked trains or communication problems, may have slowed operations.

Any shortfall may not matter much at the moment. Large buyers of uranium, such as China and France, which are heavy users of nuclear fuel, have stocks of several years. The utilities most at risk could borrow from their foreign peers in the event of an immediate shortage, says Toktar Turbay of BELIEVED, a consulting firm. Most of them buy nuclear fuel using long-term contracts that largely insulate them from short-term jumps in the spot price. All of this creates a buffer against compression.

Yet events in Kazakhstan, which for decades had been the world’s most stable supplier of uranium, could potentially push buyers to guard against the risk of relying too much on one source. Perhaps a day will come when the Kazakh government falls or state assets come under attack (Kazatomprom, the country’s only uranium producer, is 75% owned by a sovereign wealth fund). Some consumers are therefore seeking to diversify their sources of supply. As Kazakhstan is by far the cheapest producer, this will involve paying a premium.

A rise in aggregate demand could push prices up further. From Belarus to Bangladesh, many emerging markets are going nuclear to help them decarbonize. China plans 150 new reactors in the next 15 years. Even in the West, which has long been ambivalent about nuclear energy, mentalities could change. The European Commission plans to classify nuclear as green in its “taxonomy” for investors, which could direct funds towards new projects. NuScale, the first company seeking to market small modular reactors to be approved by US regulators, is preparing to go public (via a merger with a special purpose acquisition company).

Beyond the short term, supply may not be able to increase quickly enough to satisfy a greater appetite for the metal, further supporting prices. New mines are planned in Africa and the Americas, but they require a price of at least $ 50 to $ 60 per pound of uranium to be profitable. If a 2% increase in demand per year by 2030 – a conservative estimate – is to be met, then all of these projects will need to be up and running, says Tim Bergin of Calderwood Capital, a hedge fund. It may not be realistic. One such mine, in Canada, is under a lake; another is to freeze the ground up to 400 meters below the surface. The price of fissile fuel could become increasingly flammable.

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This article appeared in the Finance & Economy section of the paper edition under the title “Atom and abroad”

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