Conversion services: better times ahead for suppliers?

The health of the world natural uranium (U3O8) to uranium hexafluoride (UF6) conversion services market in the 1990s may be characterised by the behaviour of the spot market price. Prices remained relatively strong between the beginning 1994 and the middle of 1997, after which it underwent a 55% decline before bottoming out in late 1999 at a level that some suppliers claimed was below the cost of production.

After remaining at this low critical level for about one year, the market price then took an upturn in October 2000 when it became apparent that secondary market excess supplies had been cleared from the market.

The price upturn was strengthened in December 2000 when USEC filed dumping allegations against the two European enrichers, Urenco and Eurodif/Cogema. The market price received a further upward impetus in February 2001 when BNFL announced that it would shut down its Springfields UF6 plant at the end of March 2006 and cease all further marketing of conversion services. The secondary market shortage and the BNFL announcement have resulted in a doubling of the market price within about six months to the current Ux North American spot market price level of $5.00 per kilogram of uranium (as UF6).

The sustainable capacities of the existing conversion plants when combined with the highly enriched uranium (HEU) from Russia and commercial inventories, should be able to provide adequate equivalent conversion services supply through the middle of this decade. However, the supply capability margin is sufficiently thin that interruption by any one of the producers or the inventory holders could cause problems for consumers.

It is projected that the shutdown of the BNFL plant in 2006 and the substantial drawdown of inventories will result in the need for an expansion of the remaining primary production capacity early in the second half of this decade. Because of the foregoing marginal capacity situation and the potential shortfall later in the decade, it is projected that there may be a further hardening in the market price by the middle of this decade.

The USEC inventories and HEU-derived low enriched uranium (LEU) will have to provide the market with a substantial supply of equivalent conversion services throughout this decade, a supply that is as large as the output of a major conversion plant.

The conversion services contained in the Russian HEU is equivalent to 9180 tonnes of uranium (tU) as UF6 per year, approximately the same as the 2000 production of 9300tU provided by the only United States producer, ConverDyn, from the Metropolis facility in Illinois.

THE MARKET

World conversion services requirements for uranium as UF6, UF4 and UO3, that is, in all commercial forms, adjusted for plutonium and uranium recycle, are projected to range between 60,000 and 62,000 tU during the next 20 years. World requirements for uranium as UF6 for enriched uranium fueled reactors, that is, UF6-only, are projected to range between 57,000 and 59,000 tU during the next 20 years. The difference between these represents projected requirements for natural uranium fuel for Canadian and UK reactors.

The annual requirements of the USA, western Europe, eastern Europe, and the Commonwealth of Independent States (CIS) are projected to collectively decline by about 3600tU during this decade. Collective annual requirements in East Asia and other countries are projected to increase by about 2700tU during the same period.

Western Europe and the USA are expected to account for the largest cumulative shares of world annual requirements through 2010, at 29% and 32%, respectively. East Asia represents about 24% of world requirements, with Japan accounting for about 60% of this sector. France represents approximately 14% of world requirements and almost half of the European requirements.

The world natural uranium to uranium hexafluoride conversion services spot market price began a decline from $5.85 per kgU as UF6 early in June 1997 that did not end until August 2000, when it reached a low of $2.30 per kgU. The spot market price has since risen steadily to a June 2001 level of $5.00 in the North American market. The Ux price for the European market is reported to be $5.25.

The conversion services spot and long-term market volumes were approximately 5000tU as UF6 and 16,000tU, respectively, in 2000, little changed from the previous year. The spot market volume in the first half of 2000 suggests that activity will be about the same in 2001 as in 2000.

The long-term volume in 2000 was split about equally between US and non-US customers and about equally between conversion services and other forms, that is, enriched uranium product and UF6. US buyers tended to contract for a delivery term of about three years whereas non-US buyers sought coverage for twice as long a delivery term.

The rise in the market price since the end of last year has diminished interest in discretionary purchasing. In a change from previous years, producers have become the source of half of the supply in the spot market this year. One of the reasons for the shortage of spot market supplies in the second half of 2000, was the withdrawal of USEC from the market. USEC’s withdrawal was probably occasioned by its large inventory commitments and by the possibility of inventory problems brought about by technetium contaminated feed transferred to it by the US Department of Energy when it was privatised in July 1998. A further reason was the lack of sales of Russian HEU UF6 feed due to the uranium market price being below the floor price set by Minatom.

PRIMARY SUPPLIERS

The commercial conversion services supply industry began in 1959 when Allied Chemical Corporation, now Honeywell, started up a conversion services plant in Metropolis, Illinois, directly across the Ohio River from the US Atomic Energy Commission’s Portsmouth gaseous diffusion enrichment plant.

This 12,700tU conversion plant is in operation today in support of the ConverDyn general partnership of Allied-Signal and General Atomics. Production in 2000 is shown in the table.

In 1970, Eldorado Nuclear, now Cameco, brought a commercial conversion services plant into operation at Port Hope, Ontario, Canada. In 1984, Eldorado brought a large UO3 refinery into production at Blind River, Ontario, about 400 miles west of Port Hope. Today, Cameco’s 18,000tU Blind River plant produces UO3 that is then converted to UF6 at the 10,500tU Port Hope plant. Cameco’s 2000 UF6-plus-UO2 production at Port Hope was about 9300tU. Demand for UO2 services in 2000 was about 1700tU. The UO2 plant, which serves the CANDU reactors can produce 2500tU per year. The uranium metal facility can produce 2000tU per year.

In the UK, the first commercial conversion services plant went into operation in 1960 to produce uranium tetrafluoride (UF4) for the UK’s gas-cooled graphite-moderated natural uranium-fueled Magnox reactors. While a plant to convert UF4 to UF6 was brought into operation at Springfields in 1968, this was shutdown in 1993 when BNFL replaced it with a new 6,000 tU plant, its current plant. However, as noted above, BNFL will shutdown this plant at the end of the first quarter of 2006. In the meantime it will operate in support of its own nuclear power reactors and existing customer commitments.

In 1959, the French Commissariat a l’Energie Atomique started up a conversion plant to produce uranium metal at Malvesi in France. In 1961, a UF6 conversion plant was brought into operation at Pierrelatte by Societe des Usines Chimique de Pierrelatte. These two companies were merged into Comurhex in 1971 that is now owned by Cogema (100%). The Malvesi plant produces UF4 that is converted into UF6 at the 14,000tU Pierrelatte plant, and uranium metal for some customers.

In Russia, the military and civil nuclear fuel cycles have been highly integrated over the years. Because of this and the secrecy that is still maintained, information is both sparse and uncertain. Reference has been made to two large and one small conversion plant and a total capacity of 22,000tU per year. Plant locations have been given as Angarsk, Tomsk, and Ekaterinburg. While the Angarsk and Tomsk plants are reported to have routinely processed recycled uranium, it has been stated that they can be quickly purged (“cleaned”) if necessary.

There are also small conversion facilities operating in countries developing their own indigenous fuel cycle capabilities:

•Brazil has a 90tU per year UF6 plant at Sao Paulo and has for some time had plans to bring a larger plant into operation in the future.

•Argentina has a 150tU per year UO2 conversion plant at Cordoba.

•India has a 250tU per year UO2 plant at Hyderabad.

•South Korea has a 200tU per year UF6 to UO2 conversion plant at Taejon.

The major commercial suppliers currently operating UF6 conversion services facilities are listed in the table. The table gives the 2001 nameplate capacity, 2000 production, projected sustainable capacity, and inventory (in all forms) potential drawdown through 2010, and for comparison purposes, world requirements, adjusted for plutonium and uranium recycle. The data in the table show that the difference between sustainable capacity and requirements is projected to be about 3000tU through 2005, after which an annual shortfall of almost 6000tU is projected. This implies that the loss of BNFL will have to be accounted for by expansions by one or more of the remaining suppliers.
Tables

World UF6 conversion services capacity (tU as UF6)