ANALYSIS-US Govt's uranium transfers won't stop imports

Published: 13 Dec 2009 17:20:25 PST

* Release of more U.S. inventories to pressure spot price

* U.S. uranium producers fear will be hurt by transfers

* U.S., biggest uranium consumer, to still rely on imports

WASHINGTON, Dec 11 - The U.S. government's plan to release some of its massive uranium holdings is due to put downward pressure on spot prices, but will do little to reduce reliance on imported supplies by the United States, the world's biggest consumer of the material that fuels its nuclear plants.

U.S. mine supply of uranium has dwindled since peak output was hit in the 1970s when over 250 mines were churning out material, and it now feeds less than 10 percent of demand from the U.S. nuclear industry.

Since the United States accounts for nearly a quarter of the world's 436 operating reactors and consumes about 50 million pounds of uranium a year -- 30 percent of global demand -- it will continue to rely on foreign imports for the bulk of supply for the foreseeable future.

"We will still be importing large quantities from other countries, primarily from Canada, Australia and Kazakhstan," said Julian Steyn, president of Energy Resources International (ERI), a Washington, D.C.-based consulting firm.

Adding to short-term supplies was a move last month by U.S. Energy Secretary Steven Chu to approve the release of additional inventories.

The Department of Energy has a total of 59,000 tonnes of inventories of natural uranium built up for military reasons during the Cold War and is releasing the stocks gradually over about 25 years.

But it agreed to transfer an additional amount, up to 300 tonnes of uranium each quarter through 2010, to help pay for the cleanup of the Portsmouth uranium enrichment plant in Ohio.

BIG IMPACT IN SPOT MARKET

Selling the DOE's uranium would have its biggest impact in the short-term spot market, where U.S. nuclear power plants get 3 million to 4 million pounds of their uranium annually.

The department's uranium transfer plan "eats up 2 million pounds of that," said Suzanne Phelps, senior project manager for fuel policy at the Nuclear Energy Institute, the trade group for the U.S. nuclear industry.

Not only would business be taken away from domestic producers, but the additional DOE supplies in the market could depress prices, making it difficult for producers to expand operations.

"In our view, this move is quite worrying in terms of near term spot prices," Raymond James said last month about the department's uranium transfers.

UK-based BMO Capital Markets Research also warned that the department's plans "could have negative consequences for the spot price of uranium... history indicates that all buyers will exit the spot market in anticipation of lower future prices."

The spot price of U3O8, a uranium compound that is processed into fuel for nuclear reactors, has fallen to about $45 per pound from a record $137 in June 2007.

The Portsmouth plant had a long history of enriching uranium for defense and commercial nuclear power needs, but that ended in 2001. The site is now being cleaned up after being contaminated with radioactive and chemical compounds.

The first transfer will begin this month when DOE sends 205 metric tons of uranium to USEC Inc, a major supplier of enriched uranium fuel for U.S. nuclear power plants, said DOE spokeswoman Jennifer Lee. Future quarterly transfers will not exceed a combined 1,125 tonnes, or about 2.4 million pounds, next year.

DOMESTIC PRODUCERS HURT?

USEC has promised not to put too much of the uranium in the market at any one time, but the inventory transfers would go against the market guidelines the nuclear industry and the DOE agreed to in 2007, Phelps said.

That deal limits the department from supplying, over a phase-in period, more than 10 percent of the nuclear industry's uranium needs annually after a gradual phase-in period.

Phelps said the sales would especially hurt domestic producers, who are key to keeping uranium prices competitive and producing enough supply when new U.S. nuclear power plants come online around the middle the next decade.

The number of mills and plants producing uranium in the United States shrank to four this year from seven last year, after prices fell.

The DOE says it plans to continue to whittle down the 59,000 tonne inventory in the long term, and to keep a reserve of 670 tonnes, but has vowed to only release it gradually.

"DOE will dispose of the uranium only after it determines that the uranium disposition will have no adverse material impact on the domestic uranium market," DOE spokeswoman Jen Stutsman said.

For the long term, the uranium transfers aren't seen impacting imports, which power plants rely on for about 90 percent of their uranium.

"These quantities are going to be a small percentage of world requirements and a small percentage of what we need," said the ERI's Steyn.

The United States will also continue to receive for a few more years a large amount of uranium from Russia, which comes from its decommissioned nuclear weapons.

U.S. uranium demand is due to grow slowly by an average of 0.6 percent a year from 51.4 million pounds this year to 53.3 million pounds in 2015, according to Energy Resources International, a Washington D.C. based consulting group.

For a TAKE A LOOK on uranium, click on , a Washington, D.C.-based consulting firm.

Adding to short-term supplies was a move last month by U.S. Energy Secretary Steven Chu to approve the release of additional inventories.

The Department of Energy has a total of 59,000 tonnes of inventories of natural uranium built up for military reasons during the Cold War and is releasing the stocks gradually over about 25 years.

But it agreed to transfer an additional amount, up to 300 tonnes of uranium each quarter through 2010, to help pay for the cleanup of the Portsmouth uranium enrichment plant in Ohio.

BIG IMPACT IN SPOT MARKET

Selling the DOE's uranium would have its biggest impact in the short-term spot market, where U.S. nuclear power plants get 3 million to 4 million pounds of their uranium annually.

The department's uranium transfer plan "eats up 2 million pounds of that," said Suzanne Phelps, senior project manager for fuel policy at the Nuclear Energy Institute, the trade group for the U.S. nuclear industry.

Not only would business be taken away from domestic producers, but the additional DOE supplies in the market could depress prices, making it difficult for producers to expand operations.

"In our view, this move is quite worrying in terms of near term spot prices," Raymond James said last month about the department's uranium transfers.

UK-based BMO Capital Markets Research also warned that the department's plans "could have negative consequences for the spot price of uranium... history indicates that all buyers will exit the spot market in anticipation of lower future prices."

The spot price of U3O8, a uranium compound that is processed into fuel for nuclear reactors, has fallen to about $45 per pound from a record $137 in June 2007.

The Portsmouth plant had a long history of enriching uranium for defense and commercial nuclear power needs, but that ended in 2001. The site is now being cleaned up after being contaminated with radioactive and chemical compounds.

The first transfer will begin this month when DOE sends 205 metric tons of uranium to USEC Inc, a major supplier of enriched uranium fuel for U.S. nuclear power plants, said DOE spokeswoman Jennifer Lee. Future quarterly transfers will not exceed a combined 1,125 tonnes, or about 2.4 million pounds, next year.

DOMESTIC PRODUCERS HURT?

USEC has promised not to put too much of the uranium in the market at any one time, but the inventory transfers would go against the market guidelines the nuclear industry and the DOE agreed to in 2007, Phelps said.

That deal limits the department from supplying, over a phase-in period, more than 10 percent of the nuclear industry's uranium needs annually after a gradual phase-in period.

Phelps said the sales would especially hurt domestic producers, who are key to keeping uranium prices competitive and producing enough supply when new U.S. nuclear power plants come online around the middle the next decade.

The number of mills and plants producing uranium in the United States shrank to four this year from seven last year, after prices fell.

The DOE says it plans to continue to whittle down the 59,000 tonne inventory in the long term, and to keep a reserve of 670 tonnes, but has vowed to only release it gradually.

"DOE will dispose of the uranium only after it determines that the uranium disposition will have no adverse material impact on the domestic uranium market," DOE spokeswoman Jen Stutsman said.

For the long term, the uranium transfers aren't seen impacting imports, which power plants rely on for about 90 percent of their uranium.

"These quantities are going to be a small percentage of world requirements and a small percentage of what we need," said the ERI's Steyn.

The United States will also continue to receive for a few more years a large amount of uranium from Russia, which comes from its decommissioned nuclear weapons.

U.S. uranium demand is due to grow slowly by an average of 0.6 percent a year from 51.4 million pounds this year to 53.3 million pounds in 2015, according to Energy Resources International, a Washington D.C. based consulting group.

For a TAKE A LOOK on uranium, click on (Reporting by Tom Doggett; additional reporting by Eric Onstad; Editing by Hans Peters