China boom in uranium market

Uranium markets witnessed a nuclear blast last month with the prices of the commodity soaring to unimaginable levels following China’s decision to step up nuclear power generation.

China recently said it could build 112 gigawatts of nuclear capacity by 2020. Following his move, price of uranium shot up to $65 a pound within a few days, after languishing near $40 a pound since the onset of the global recession.

112 gigawatts is about a third of the world’s current nuclear capacity, and 60% above the high estimate for China’s growth forecast by the London-based World Nuclear Association last year. China is currently building 26 new reactors, more than twice as many as the nearest contender, Russia.

Although China later played down the top-line figure, uranium prices and the stocks of uranium producers have kept their gains. This is largely because people were already seeing signs in the market that China is preparing for a bigger nuclear-power expansion than previously estimated.

According to a Wall Street Journal report, a few weeks ago China’s largest nuclear-power utility signed a decade-long agreement to purchase uranium from Areva SA, France’s state-owned nuclear power company. Earlier in the year, another Chinese utility signed a similar contract with Canada’s Cameco Corp., the world’s largest publicly traded uranium producer. Also, China’s uranium imports this year through August tripled from the year-earlier period to 9.9 million tons.

Mining analysts predicted that China’s moves to lock up long-term supplies would mark the beginning of a multiyear bull-market cycle, and forecast prices of $75 to $80 a pound by 2012.

Uranium prices have soared before, only to melt down shortly afterward. At the end of the Cold War in the early 1990s, a pause in demand and a large new supply from decommissioned Russian and US warheads helped depress prices below $20 a pound. When Russia said it would end its nuclear-weapons decommissioning program in 2013, prices rose steeply through 2006 and reached $136 a pound in the summer of 2007. Then the bubble burst and the global economic crisis took hold.