Uranium: adequacy in a maturing marketplace27 August 1998
The emergence of the Newly Independent States (NIS) of the former Soviet Union as substantial sources of uranium, the availability of LEU fuel sourced from stockpiles of HEU and the recent privatisation of the US Enrichment Corporation (USEC) as USEC Inc, mean there is likely to be an oversupply of uranium in the international market for the foreseeable future. With no perceptive increase in uranium demand, there should be no upward pressure on market prices. But problems such as trade constraints or mine production difficulties have the potential to dramatically change this picture.
Spot market volume in 1998 is likely to be about half of what it was in 1996 and 1997, and quarter that of 1995. While long term contract volume in 1997 was approximately 70 million pounds, only slightly less than the 1995 volume, 80% of it was placed by non-US utilities, primarily by a single Asian utility. Long term volume in 1998 is expected to be about 50 million pounds, with about 60% being non-US. In 1997, traders and others sold almost 60% of the 20 million pounds sold in the spot market whereas utilities and producers only sold about 20% each. Utilities purchased almost two-thirds of the transacted spot market volume, with producers and traders/others buying approximately one-quarter and one-sixth, respectively. Two-thirds of the volume was sold in the form of uranium concentrates, almost one-third as UF6 and less than a million pounds as enriched uranium product. In the long term market producers contracted for more than 90% of the volume with traders getting less than 5%. Because of the predominance of producers as sellers, the majority of the long term contract sales were in the form of uranium concentrate.
The decline in the spot market’s activity occurred as the price fell from the $16.60 per pound U3O8 peak in June 1996 to $10.30 in August 1997. The price recovered to $12.75 in November 1997, primarily as a result of short-lived discretionary buying accounting for about half of the third quarter’s volume of more than 4 million pounds, but it has since fallen back to $10.50.
The outlook for the uranium market, and both spot and long term prices, must be viewed against the realities of adequate sources of supply and declining demand in the future in most areas except the Far East. Another factor is the mergers, acquisitions and alliances currently taking place within the US utility industry, which will result in fewer larger nuclear power dedicated generating companies. Such companies will probably have more buying power and be able to take advantage of economies of scale and enter into competitive and innovative supply arrangements. It is unlikely that prices in today’s dollars will enter the mid-teens between now and the end of the next decade. As at least two-thirds of future supply must come from primary mine production, it is unlikely that this component can be provided below a price of $10 per pound.
US GOVERNMENT INVENTORIES
The July 1998 privatisation of USEC has released another large uranium inventory. The new corporation is expected to begin selling its government-derived uranium-equivalent (U3O8e) inventory, of almost 75 million pounds, as soon as the market will allow without negative impacts to either it or the industry generally. The new corporation has stated that it plans to sell 62 million pounds by the end of 2005. USEC may also operate its diffusion plants in the underfeed mode if economics permit. For example, underfeeding the diffusion plants at a tails assay of 0.26 weight percent (W/o) U-235 could result in the ‘production’ of about 2.8 million pounds annually, assuming that electric power costs for the production of 8 million separative work units (SWU) of enrichment annually average $55/SWU, that there is a tails disposal credit of $5/kg, that conversion services cost $5.50/kgU, and that the market price of uranium is approximately $11/pound U3O8. The figure of 8 million SWU per year is based on the difference between the corporation’s current and future anticipated portfolio and the SWU contained in the highly enriched uranium (HEU) that the Russians are to deliver to USEC in accord with the US-Russia 1993 purchase agreement. USEC could also produce equivalent uranium by feeding existing tails to the plants, within the 8 million SWU production capacity limit. Even though USEC is materially capable of supplying the market with between 9 and 12 million pounds annually for the next seven years or so, there is no pent-up market demand currently waiting for such large quantities. Therefore, the corporation will have to gradually ramp up, and possibly stretch out its uranium sales. Of course, there is always the possibility of a block sale of a portion of the inventory to a third party, for example, a trading company, albeit at a discounted price since the buyer would have significant carrying costs.
In addition to the USEC inventories, the US Department of Energy (DOE) held an inventory of approximately 34 million pounds that it had planned to begin selling into the market in 1998 for delivery over the next seven years or so. However, its May 1998 transfer to USEC of 11.6 million pounds reduced DOE’s inventory accordingly and increased USEC’s from 63 to almost 75 million pounds, an action which surprised many in the industry, particularly the uranium mining sector. The move created concern in some Congressional quarters, in the US mining industry, and in Russia that the sale of DOE’s remaining inventory could impact the market negatively, particularly in view of USEC’s planned inventory sales. Furthermore, the non-proliferation community is concerned that the sale of uranium from USEC and DOE inventories could depress the market price of uranium, substantially reducing the value to Russia of the bilateral HEU purchase agreement, putting it in jeopardy. In July of this year, the DOE announced that it would not enter into any more uranium sales for several years.
The DOE also plans to sell light water reactor fuel off-specification HEU inventories that are excess to the government’s needs. Under a January 1997 agreement between the DOE and the government-owned utility, the Tennessee Valley Authority (TVA), the two organisations will undertake a joint programme to produce nuclear fuel for two of TVA’s reactors using isotopically contaminated HEU-derived low enriched uranium (LEU). This programme, which involves a complex cost sharing arrangement, will allow the DOE to avoid the cost of disposing of approximately 30 to 40 t of HEU in the form of 0.9 W/oU-235 waste, while at the same time providing fuel for TVA’s two Sequoyah units.
The TVA agreement may also set a precedent for other utilities to consider the use of off-specification material that is excess to government needs. The US and Russian governments have significant quantities of such material located at various facilities.
RUSSIAN HEU FEED DISPOSITION
In November 1996, the US and Russia revised their 1993 HEU purchase agreement. The revisions provided that the US government would only purchase the enrichment component of the HEU-derived LEU that was to be delivered to the US Executive Agent, USEC, and that Russia’s Ministry of Atomic Energy (MINATOM) would itself make arrangements to market the uranium and conversion services component. The revision also firmed up deliveries to USEC until 2001 based on 18 t of HEU in 1997, 24 t in 1998, and 30 t per year thereafter. Under the terms of the agreement, the downblending of one tonne of Russian HEU will result in the production of approximately 0.8 million pounds of natural uranium-equivalent ‘feed’, approximately 28% of it from the 1.5 W/oU-235 blendstock that is produced from enrichment tails. Therefore, 30 t of HEU corresponds to about 24 million pounds of uranium feed. Though the use of the Russian HEU uranium feed in the US is constrained by a gradually increasing quota that is specified in the USEC Privatization Act of 1996, and by guidelines in the European Union (EU), the quantities are, nonetheless, very large. For example, the US end-use quota rises to 16 million pounds by 2005 and 20 million pounds by 2009 and beyond. These Russian HEU quantities, which are equivalent to the output of two world-class uranium mines, will be entering into the US and world markets at the same time as the USEC inventories.
MINATOM is to arrange for the marketing of the Russian uranium feed. Although MINATOM seemed to have concluded an arrangement with two Western mining companies and one trading company, Cameco Corporation, Cogema Resources, and Nukem Inc, in mid-1997, that arrangement collapsed later in the year. However, there have been recent reports in the press that MINATOM and these three Western companies have resumed negotiations. If the negotiations are concluded as scoped in 1997, the arrangement may result in MINATOM, through Techsnabexport (Tenex), keeping about 30% of the feed for its own purposes and allocating the remainder for Western world sales. Approximately 40% of the 370 million pounds of HEU feed still to be delivered may be consumed by US end-users by 2013. The rate at which the market could absorb the large quantities involved in the next five years is limited, and a build-up of as much as 30 million pounds outside Russia could occur by about 2002, which will not be worked off until around 2008.
Canada, the world’s largest single mine producer of uranium, will provide approximately one quarter of the world’s supply for the foreseeable future. Australia, the second largest source of mine production, is likely to produce at about half the rate of Canada. The four former Soviet republics of Russia, Kazakhstan, Uzbekistan, and Ukraine are projected to provide mine supply equivalent to about 9% of world needs. The projected output of the African nations, Namibia and Niger, will each be about 9%. The output of mines in the US will be about 4% of world requirements. Taken altogether, mine production should meet almost 70% of world requirements, with inventories (in all forms) making up the remaining supply.
In Saskatchewan, Canada, the new McClean Lake Production Center mill complex should go into operation either late this year or early next, in support of McClean Lake’s operating mines. The mill is scheduled to begin receiving ore from the rich Cigar Lake deposit in 2001, with ore from the Midwest Lake mine following in 2004. The second new centre, McArthur River, has received government approval for development and is scheduled to go into operation in mid-1999; the ore from this mine will be fed to the Key Lake mill whose mine is almost depleted. The annual nominal output rates of the McClean Lake complex and the McArthur River centre will be 24 and 18 million pounds, respectively. The two existing Key Lake and Rabbit Lake/Eagle Point centres will be depleted by 2000 and 2002, respectively, and the existing Culff Lake centre will be shut down in 2000 for economic reasons.
The defeat of the Labour Party in Australia in early 1996 has resulted in the expansion of annual capacities at the two existing centres, Ranger and Olympic Dam, to 13.2 and 10.2 million pounds, respectively. In addition, several companies are planning to develop new uranium deposits in the next few years, providing there are no changes in the political situation, a possibility that cannot be dismissed. An example of production perturbation took place at the Ranger mine between February and June this year when output fell by 30% due to unexpected chemical processing problems.
Production in Namibia and Niger will remain relatively constant at about 8 million pounds annually in each case into the next decade. Production in Gabon should end in about the year 2000, as a result of reserve depletion. Production in Russia, Kazakhstan, Ukraine and Uzbekistan is not expected to increase above current levels, due to the degradation of existing aging facilities, economic pressures as these countries move toward becoming market economies, and the switch from conventional mining techniques to lower cost in-situ leach (ISL) technology which tends to be rate-of -production limited.
A major cause for utility industry concern is the increasing supplier corporate concentration that has been taking place in the past few years. This has been heightened by the recent acquisition by Cameco of the uranium assets of Uranerz Exploration & Mining Limited, which was already a major supplier. As matters now stand, three entities: Cameco, MINATOM, and the French government-controlled nuclear fuel company, Cogema, are likely to meet more than half of the Western world’s needs during the first half of the next decade. Interestingly, these organisations are currently negotiating the marketing of the Russian HEU uranium feed. The addition of four other entities: Energy Resources of Australia (Ranger production centre), Olympic Dam, Namibia’s Rossing Limited, and USEC, would bring the projected supply concentration level up to about 78%. Canada and Australia are expected to meet almost half of the Western world’s demands (excluding the NIS nuclear power republics and China).
In November 1991, the DOE uranium enrichment enterprise’s labour union and a group of US uranium mining companies petitioned the US Department of Commerce (DOC) to undertake an investigation of alleged dumping by the NIS. A finding in 1992 that harm was being done to the miners and the US enrichment enterprise resulted in import tariffs being proposed and then suspended as a result of Suspension Agreements. Three republics: Uzbekistan, Kazakhstan, and Russia, are currently limited in their uranium and enrichment trade with the US as a result of these agreements until at least 2002, 2004 and 2004 respectively, when the agreement periods are scheduled to end. There are several import contracts still in force that were ‘grandfathered’ under the suspension agreements, though the annual quantities are now diminishing. As matters now stand, US end-use contracts under the agreements for US imports from Russia, Kazakhstan, and Uzbekistan are subject to matched-sale quotas, price-tied quotas, and US production-level-tied quotas, respectively. The Russian matched-sale quota until 2003 is slightly more than 4 million pounds per year. The sale of HEU feed, which has already begun, will reduce the prospect of matched sales in the future. The threshold price for Kazakh sales is $12 per pound which is greater than the DOC calculated market price, and thus, no imports from Kazakhstan are currently allowed. The level of US production in 1997 at 5.6 million pounds currently limits Uzbek imports to 0.85 million pounds.
The industry is currently questioning if and when the agreements will come to an end. These questions have been underlined by the Uruguay Round Agreements Act (URAA), effective 1 January 1995, that requires antidumping and countervailing duty orders be revoked and suspended investigations be terminated after five years, unless revocation would likely lead to a continuation or recurrence of dumping and injury. The DOC is now required to perform ‘sunset’ reviews of the suspension agreements by the end of 1999 in accord with the URAA, and has scheduled to do so in August 1999. However, the industry generally does not expect the constraints to be lifted as a result of these reviews. Further, it is not even likely that the suspension agreements will really be lifted when they reach the end of their terms, but rather, it is more likely that they will be revised, and perhaps softened in some degree, for example with regard to implementation procedures.
In addition to US import constraints, NIS uranium equivalent material is subject to the import constraints of the European Union (EU) through policy guidelines but not law. EU policy aims at maintaining the maximum dependency of the EU users at approximately one-quarter of total net requirements, and ensuring trade at market related prices, on a utility-by-utility basis. The EU constraints are less prescriptive than those of the DOC, and provide some flexibility to take account of special situations. NIS deliveries to the EU in 1997 totalled 31.5 million pounds, of which the 13.0 million pounds delivered to utility end-users represented 33% of deliveries to end-users from all sources. NIS deliveries in 1997 were 27% below deliveries in 1996, the 1990s peak year.