Uranium markets in flux: Producers wary of U.S. protectionists

Western Canadian uranium producers are keeping a close eye on developments in the U.S. market where protectionist sentiments threaten to hurt them more than any other uranium producers in the world.

The world’s uranium markets are probably the most politically dominated of any commodity, and the current situation is one of the most explosive in years.

For the first time in years the supply and demand fundamentals in uranium markets seems to be coming into balance, a function of the greater number of reactors now on stream in the world and a reduction of U.S. uranium production to about one quarter of what it was in 1980.

For the first time in years, uranium consumption was greater than supply in 1985 and, while inventory overhand is still a factor, many U.S. consumers’ stockpiles have been cut dramatically during the past four years.

In fact, the U.S. is estimated to be the source of half the world’s demand for currently uncommitted uranium production during the next half decade.

Close proximity, political affinity and low cost production make Western producers a natural supply source for the American market. That, however, doesn’t take into effect the politics of uranium.

Politics means being able to prop up the decimated and uneconomic U.S. uranium producing industry through protectionist measures.

The most alarming threat comes from a court decision handed down in June in Denver, Colo., banning foreign uranium imports for enrichment and domestic consumption as of Jan 1, 1987. The U.S. Department of Energy is appealing that decision, and the outlook appears to be good for reversing that decision. Nontheless, it caused major shockwaves throughout the world’s uranium markets.

Politics also means that a U.S. Senator from New Mexico, a U.S. uranium producing state, stands a good chance of seeing his legislation passed to restrict foreign source uranium to 50% of the American market.

“Surprisingly enough, the bill has gained the support of utilities which in the past have been reluctant to endorse it,” says Nicholas Nikasmerad, President of the West German uranium broker Nukem.

Originally, Canadian producers seemed fairly receptive to Senator Domenici’s bill on the basis that access to 50% of the U.S. market was better than nothing.

“But wiser heads have said that’s a dumb attitude to take; we should fight this thing,” says Norman Aspin, president of the Canadian Nuclear Association.

Combine the uncertainty of the U.S. market with a U.S. ban on South African uranium imports forcing them into other markets, a balancing of world uranium supply and demand and you have the makings of a very volatile market.

Ted Munden, a corporate planner at Eldorado Resources, says the most immediate threat to Canadian producers is the Denver court decision. The judge in that case invoked the same legislation that was used in the mid-1960s to effect a ban on foreign uranium, a ban that was only fully lifted in 1984.

Market prices have reflected the ending of that embargo slumping from a high of close to $50 per pound in 1979 to $16 in 1985.

The Domenici bill, which died on the order paper when Congress was adjourned for mid-term elections, is likely to be introduced, he says, but not until sometime in the new year. It could well succeed in some form because it has support from a variety of sources.

The U.S. market, although only about one-third of the world market, is vital to the Western Canadian producers because it is largely spot-market oriented. The other major markets — Europe and Japan — have opted for long-term contracts to assure supply.

Mr Munden feels the Canadian producers could eventually face some level of embargo from the United States, but adds that the industry could live with it.

Denison Mines is the only Canadian uranium producer not greatly exposed to the U.S. market. It relies on contracts with Ontario Hydro and Japanese utilities.

The Saskatchewan Mining & Development Corp. along with Eldorado and German-based Uranertz are the main Western producers. Rio Algom has significant exposure to the U.S. market but also exports to Europe and has long- term contracts with Ontario Hydro.