Uranium supply concerns associated with EEU

Russia, Belarus and Kazakhstan signed an agreement to form a Eurasian Economic Union (EEU) on May 29. Uranium market watchers should pay close attention and understand the potential implications of the alliance on the stability of the world’s uranium supply, even though the alliance has been dismissed as unimportant by some media pundits.

For example, a May 29, 2014 BusinessWeek article titled Putin’s Eurasian Union Looks Like a Bad Deal, Even for Russia includes the following quote.

Creation of the union “won’t really register on the radar of the global economy,” says Nicu Popescu, an analyst at the EU’s Institute for Security Studies in Paris.

Mr. Popescu appears blissfully unaware of the fact that the combination of Russia and Kazakhstan controls approximately 50% of the world’s uranium market.

Both countries have openly publicized plans to continue increasing production, even though the market has been weak since March of 2011.  (Ref: Russia to Triple Uranium Production in Next 2 Years – Rosatom and Kazakhstan tops uranium league)

As a result increased Eurasian production and lowered uranium demand from both Germany and Japan uranium prices continue falling to significantly less than $30/pound, a level not seen since the 1990s.

Russia and Kazakhstan seem determined to capture an increasing share of the market as other producers announce production cutbacks and exploration deferrals.

In many ways, the 2011-2014 uranium market includes echoes of 1973-1975, when a lengthy period of low uranium prices led to complacency among customers. Many buyers deferred physical purchases, expecting that they would always be able to purchase their product sometime in the future at a favorable price.

Those deferred purchases led to a continued slide in prices and a growing number of suppliers dropping out of the market due to mounting losses. A few well-capitalized suppliers bided their time. After enough competitors dropped out of the market, they coordinated a response.

In 1975, the trend line for uranium prices sharply reversed. Though they had remained below $10 per pound for several years, they reached $40 per pound by the middle of 1975.

Westinghouse, one of the companies with a large deferred need to purchase uranium in the early 1970s, cried foul and loudly complained about the uranium cartel. Robert Kirby, who had just become Westinghouse’s CEO, realized the financial risk to his company and began devoting the majority of his time to damage control.

In the end, responding to the uranium price increase consumed the better part of five years at a time when Westinghouse’s leaders should have been investing their valuable attention on more productive pursuits.

It would be a mistake for today’s uranium buyers to fail to learn lessons from history and assume that the prices will stabilize at today’s low level or to fall even further.

There is evidence supporting the notion that Kazakhstan has been engaging in a uranium price war specifically designed to drive out marginal suppliers and to capture a larger share of the market.

There is also some evidence suggesting that this action has been done with Russian assistance. The two countries, neither of which is known for their love of western-style capitalism, not only control about half of the raw uranium market, but also a growing portion of the market for separative work units and fabricated uranium dioxide fuel pellets.

Both countries can afford to squeeze the uranium market since both of them are substantial oil and gas suppliers. Demand for those fossil fuels would inevitably increase if there were a shortage of uranium that led to a reduction in nuclear power plant output.

Historical footnote: The early 1970s action by the uranium cartel also had a close tie to oil and gas producers. A 1977 article by the LA Times/Washington Post news service published in the Sarasota Herald-Tribune titled Uranium Cartel Threatens Carter’s Energy Plans: Prices Skyrocket, Squeeze Put on Westinghouse mentions the involvement of subsidiaries of the following oil companies – Gulf, Getty and Kerr-MeGee. It also includes the following perceptive quote that qualifies as a smoking gun.

Finally, in terms of current political sentiment, the yellowcake cartel may provoke more congressional interest in questions of who controls energy resources — the issue of the oil industry’s major acquisitions in uranium and coal and other fuel sources.

The cartel, by no stretch of the facts, could be blamed on Big Oil, but some in the industry fear that Gulf’s prominent role will become a cautionary tale of how oil domination of other resources threatens the future.

“It’s a perfect case,” said one oil industry source, “to prove you can’t trust the oil companies.”

End Historical footnote.

Neither Russia nor Kazakhstan is very worried about the possibility of being accused of cartel behavior.

At a time when many people in Europe worry about the potential impact of a decision by the Russian leadership to restrict gas exports, few mainstream observers are talking about the related threat to uranium supplies.

Fortunately, uranium buyers have a much more straightforward response available than natural gas consumers. They do not need to invest in long-term projects like new exploration or new pipelines. Uranium, unlike natural gas, is not difficult to stockpile.

When uranium customers notice what is happening on the world stage, they should take advantage of current low prices to add physical inventory. That action will firm up prices and probably result in a gradual price increase.

That would be good for customers over the long-term by encouraging more diversity among suppliers and less concentrated market power in the hands of countries that do not share the same goals as their customers.

You might be skeptical about this risk. If so, it is not difficult to learn more about the behavior and motives of Vladimir Putin, Russia’s current leader and one of the key players in this potentially important drama.

It takes a little more digging to find informative coverage of President Nursultan Nazarbayev’s of Kazakhstan. Not too long ago, the Guardian ran an article titled Kazakhstan is an abusive dictatorship – the UK should not court it that should be required reading for people interested in the uranium market.

The article is about the five-year imprisonment of Mukhtar Dzhakishev, the former head of Kazatomprom as told by his daughter. It is a cautionary tale about a regime that has assumed an outsized importance in the uranium market.

If history is any guide, it is time to take action to reduce the market power of Putin and Nazarbayev. The potential cost of inaction is worth taking a modest paper loss in the event that uranium prices fall a few more dollars in coming months.

Buyers might miss the opportunity to buy at the absolute bottom of the market but that beats trying to find needed supplies in a rapidly tightening market or during a possible embargo.

Nukes kill more birds than wind?

By Paul Lorenzini In the yin and yang of energy policy debates, we know some can get carried away. Normally we ignore the radical fringe, but sometimes their claims take on a life of their own and need to be addressed. One such charge has found its way as an authoritative reference on Wipikedia, alleging […]

Read more »

Romance of Radium – How did our relationship with radioactive material sour?

Radium glow finale

My lovely wife, knowing my atomic energy obsession, thought that I might enjoy watching Romance of Radium a 1937 movie short (10 minutes) from MGM Studios that TCM (Turner Classic Movies) is occasionally running to fill time between full length movies. It was utterly fascinating to me to watch how the filmmaker portrayed Henry Becquerel’s […]

Read more »

What can Chatham, VA learn from Mt Airy, NC?

The leaders of Virginia Uranium need to talk with the leaders of the North Carolina Granite Corporation. VA Uranium is seeking to obtain permission to mine its granite formation while NC Granite is the current operator of a granite quarry that has been in continuous operation since 1889. If you will forgive the obvious pun, […]

Read more »

France does not need Mali’s uranium despite all conspiracy stories to the contrary

There is a meme circulating on web claiming that France’s intervention in Mali can be traced to a desire to capture the country’s uranium resources. That idea is complete and utter rubbish that can only be believed by people who have done no math and no research to recognize whether such a theory can be […]

Read more »

Overcoming “steep hurdles” for uranium mining one step at a time

When the National Academy of Sciences issued its report on uranium mining in Virginia, it included a phrase about “steep hurdles” that has been seized by the people opposed to the enterprise and repeated as almost a mantra. It has made an appearance in almost every article I have read on the topic. Here is […]

Read more »

Front lines report – Virginia uranium mining meeting Nov 27, 2012

Another Environmentalist for Nuclear Energy

The Virginia Uranium Working Group held its final public meeting before turning their report in to the Governor on November 27, 2012. The meeting was held in a modest sized room at the Virginia Science Museum in a room where the photos on the wall celebrated Virginia’s railway heritage. One of the two large photos […]

Read more »

Virginia Uranium Working Group – Final Public Meeting Tonight, Nov 27, 2012

The Virginia Uranium Working Group, the body chartered by the governor to provide a scientific policy analysis to determine if the current moratorium on mining uranium in Virginia should be lifted, is holding its final public meetin tonight. The meeting is scheduled to begin at 6:00 pm at the Virginia Science Museum, 2500 West Broad […]

Read more »

More bloggers for nuclear energy – I Dig U Mining and Nuke Roadie

One of the features of Atomic Insights that needs to be revived is the series titled “Another blogger for nuclear energy.” In that series, I happily announced and linked to a new (to me) blog written by someone who either focuses on positive aspects of nuclear technology or who covers nuclear energy from a positive […]

Read more »

Voices of uranium mining protesters at Chatham meeting June 18

After work on Monday June 18, 2012, I drove the short distance from Lynchburg to Chatham, VA to attend a public information meeting held by the governor appointed task force on uranium mining. As I arrived in Chatham, I was treated to a fairly common event in the southeastern United States, a drenching thunderstorm that […]

Read more »

Virginia Uranium – Waiting Patiently to Create 325 Family Wage Jobs In Southside

My wife has known for many years that I have rather eclectic tastes in tourist destinations, but even with that history, she gave me a rather odd look when I suggested that we spend my day off by driving to Chatham to visit Virginia Uranium. When I pointed out how close Chatham is to our […]

Read more »