Oil, grain, gold and urainum: small risks of large markets

Economically, all these have no alternative - oil, gas and coal are too dirty and expensive.

In brief: Against this background the prospects for the current prices for uranium and the cost of producing uranium companies look ridiculous. If the market believes the rising cost of gold (the metal is known to be useless) and oil (expensive, dirty and inconvenient fuel), then the uranium (highly desired metal and clean fuels), the prospects should be on the order of magnitude greater.

Earn on investments in the commodity markets is not so simple. In the markets of major commodities – oil, grain, gold – tone is set by professionals who make a myriad unskilled investors. In exotic commodities with potential for growth – for example, such as indium or rhodium, – to invest heavily: no stock futures, it is difficult to invest in the product physically, no companies involved mainly those metals.

One exception – uranium. There are stock futures, there is a public company engaged in only uranium – extraction, refining, applying, there is a physical metal. Trading volumes are sufficient for high liquidity. In this case the investment potential of uranium is many times higher than that of most Commodity. During the financial crisis, the price of uranium has fallen by 60% and is at the level of 2004. Precious metals, oil, stocks – all of them ahead in the recovery process. However, it is difficult to name another product, demand for which is so predetermined, and the supply is so limited and varies slowly. To begin with, that the uranium price (more precisely, uranium oxide) averaged $ 43 per pound in 1978 and only adjusted for inflation today should be about $ 145 per pound, that is 3,5 times higher than current levels. The reason for the backlog is clear: a sharp reduction in demand from the military and long-term artificial inhibition of nuclear energy program in the U.S. in the period of domination “of the oil lobby.”

The issue price for uranium is directly linked to the question about the future of the world’s energy. And the future is gradually defined – in favor of the construction of many new nuclear power plants: not only that the cost of a kilowatt produced from uranium, 1,5 times lower than the “coal”, and three – the “gas”, but each used a ton of uranium reduces emissions of carbon dioxide by 33 000 t!

In the world there are about 400 nuclear power plants. We know about plans to build a minimum of 130 (32%) stations in the next 15 years, but, given a program to create 240 stations in the U.S., plans to China and India, etc., within five years, that figure is likely to be revised to increase. According to International Energy Agency forecasts that demand for uranium in the coming half century will grow by at least 3.5% per year. Incidentally, the growth in oil demand over the past 25 years has never exceeded 3% per year.

A proposal is already lagging behind demand, which is largely met by nuclear weapons. Russia under the program “Megatons in exchange for Megawatts” supplies the U.S. nuclear fuel from recycled missiles – 50% American and 13% of world demand for uranium is covered by this program. But, by 2010 70% of the program was implemented – a resource ends. Without this program in 2010-2011 amounted to lack of supply would be more than 20 million pounds (and this with an annual production of slightly more than 115 million pounds, which is likely to be slow to fall). The proposal is growing very slowly: to start the new mine, need a minimum of eight years of preparatory work!

Among the major suppliers of uranium – Kazakhstan, Namibia, Niger, South Africa. This is not the most stable countries, which creates additional risks for the market. In 2007, the flooding of only one Canadian mine, Cigar Lake proposals led to a drop of 10%. What would happen if the supply will stop an entire country? For comparison: the supply of oil is always balanced with demand and the supply of gold today is 25% more in demand!

Besides uranium enrichment is not enough to meet demand. Thomas Neff of MIT believes that investment in processing lag of 20 years. What use to increase production, if you can not recycle iron ore?

Finally, it should consider new ways of using uranium. By 2016, could start commercial plant of small reactors, for which demand is measured in thousands. The transition of transport of hydrogen fuel would require an increase electricity production order, which would entail at least quadrupling the amount consumed uranium.

Ukrainian Globalist
2010-06-12 14:51, Commodities.

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