Uranium market on downhill
The Daily Record News Group
CITY -- When the U.S. Atomic Energy Commission licensed the Cotter
Corp. mill to begin processing south of Cañon City in 1958,
the federal government agreed to pay the company $8 per pound for
processed uranium oxide, or yellowcake, the raw material used to
make enriched fuel for nuclear weapons and reactors.
It was one of the only economically stable periods the mill, and
the uranium industry, ever knew. For more than four decades, the
uranium market has been significantly influenced by government manipulation
and outside economic forces.
The marketplace is currently on a steep decline that shows no immediate
promise of ending.
From a high in the 1970s of $50 a pound, last year, according to
the U.S. Department of Energy, prices averaged only $10.15 a pound
and were as low as $7.92 on the spot market for non-contract sales.
That's 8 cents less than it was nearly a half-century ago. Meanwhile
labor, processing costs and other expenses have continued to rise
U.S. uranium mining industry has been hurt by factors that all mining
operations must contend with," James Graham, the chairman of
the Cotter board of directors, wrote in the March 2002 issue of
the journal Mining Engineering. "These include more stringent
environmental and labor laws, and new higher-grade, lower-cost deposits
being developed outside the U.S. More significantly, uranium mining
has always been subject to political whims. And the story is the
According to Michael Amundson, a history professor at Northern Arizona
University and author of "Yellowcake Towns," which chronicles
the rise and fall of four uranium mining areas, the industry has
undergone two boom-and-bust cycles.
there have been two periods of massive demand, followed by massive
build-up of stockpiles and then large oversupply," said Amundson.
The first coincided with the Manhattan Project and the development
of the atomic bomb. Under the auspices of national security, the
federal government funded a massive search for and development of
government totally subsidized the industry," Amundson said,
"mining, milling, processing, even hauling."
Prices began to decline in the late 1950s and early 1960s as the
U.S. and its allies leveled off their weapons production.
According to Amundson, government-instituted programs such as the
stretch-out program, which guaranteed government purchases of uranium
over lengthened contract periods, provided some assistance to the
struggling uranium industry.
(the government) was trying to wean them along until atomic energy
took off and demand recovered," he said.
But in 1964, the oversupply problem was exacerbated when Congress
passed the Private Ownership of Special Nuclear Materials Act. The
new law, which allowed industry, rather than the government, to
own nuclear fuel, essentially ended the subsidies and turned uranium
mining and milling over to the free market. Soon after, suppliers
had saturated the market and prices dropped.
The recovery began in the next decade as more nuclear reactors came
on line and orders for additional ones accumulated. Demand began
to rise. When Arab countries instituted an oil embargo in 1973,
the ensuing energy crisis forced prices for energy to skyrocket.
made nuclear power much more attractive," said Amundson. "There
was a huge demand for uranium"
According to the federal Energy Information Administration, in that
year alone, U.S. utilities turned in orders for construction of
a record 41 nuclear power plants.
The uranium market hit its peak in the mid-1970s, when the price
for yellowcake soared to nearly $50 a pound on the spot market --
the equivalent of $90 a pound in 2000 dollars.
But the momentum could not maintain itself.
When a reactor at the Three Mile Island nuclear power plant in Pennsylvania
partially melted down in March 1979, the nation woke up to environmentalism
and the risks of nuclear power. By the time a reactor at the Chernobyl
plant in the Ukraine failed in April 1986, releasing tons of radioactive
material into the atmosphere, utilities had already cancelled orders
for nearly 100 new reactors that had been planned a decade earlier.
The exact opposite was occurring on the supply side. From 1959 through
1974, the U.S. government upheld an embargo on foreign uranium imports.
By law, all the fuel for nuclear reactors had to be mined, milled
and fabricated domestically.
In October 1974, the U.S. government announced that it would lift
the embargo and begin allowing imports in 1997, and as a result,
U.S. energy companies increasingly began to look outside the country
for cheaper sources of uranium.
the 1970s, utilities realized that it was cheaper to import uranium,"
Amundson said, "because there were no environmental laws overseas
and the labor was cheaper."
In fact, the state of the U.S. uranium market today, according to
a report presented to Congress in 2001 by the federal Office of
Nuclear Energy, Science and Technology, "is primarily the result
of competition from low-cost producers with access to high-grade
uranium deposits, especially in Australia and Canada."
Oversupply worsened when the Soviet Union collapsed in 1991, flooding
the market with millions of pounds of stockpiled uranium, which
drove down the price for domestically milled yellowcake even further.
Two years later, to help dismantle Russia's aging arsenal of nuclear
weapons -- and to keep material for building bombs out of the wrong
hands -- the U.S. government signed an agreement to turn weapons-grade
uranium from 4,500 warheads into a less-enriched form suitable for
nuclear power reactors. Signed in February 1993, the so-called Megatons
to Megawatts program calls for the United States to buy a total
of 500 metric tons of highly-enriched uranium -- equivalent to about
400 million pounds of yellowcake -- through 2013.
And finally, according to Graham, "the privatization of the
United States Enrichment Corp. was the straw that broke the back
of the U.S. uranium industry."
Congress authorized USEC's creation through the Energy Policy Act
of 1992. Its mission, with the strategic defense needs of uranium
decreasing, was to make the enrichment end of the nuclear fuel cycle
more cost-efficient and profitable than the federal government could.
When USEC was finally privatized in July 1998, it took over government
stockpiles of uranium and saturated the market even further.
As of the end of 2001, there were currently 103 nuclear reactors
operating in the United States -- 435 worldwide -- collectively
generating about 20 percent of the nation's electricity needs. Although
10 U.S. reactors have been decommissioned since 1991, the amount
of electricity they produce has increased 26 percent, from 612.6
billion kilowatt hours to 768.8 billion hours.
The U.S. nuclear industry purchased a total of 55.4 million pounds
of uranium oxide in 2001, according to a federal Energy Information
Administration report, although 76 percent of it came from foreign
And over the next decade, meeting the as-yet unfulfilled fuel needs
of those nuclear reactors will require an additional 354.4 million
pounds of uranium.
Still, there is little good news in that for Cotter and the few
other licensed domestic uranium mills.
According to the Energy Department's updated 2001 Uranium Industry
Annual report, there were only four uranium mills and plants operating
in the United States by the end of June 2002, down from 11 just
five years earlier. Three of those ran in situ processes that leach
uranium directly from the ground, making traditional milling obsolete.
Production fell significantly in that five-year span, from 6.32
million pounds of uranium oxide in 1996 to only 2.64 million pounds
last year, a 58 percent decline and the lowest level of production
since 1953. More to the point, only 184,000 pounds came from conventional
mills -- 82 percent below the level processed in 2000, and all of
that was from reprocessing waste and mine water for uranium.
In other words, not 1 ounce of uranium produced in the United States
last year came from the conventional milling of ore. Consequently,
at the beginning of this year, all six facilities licensed to mill
uranium conventionally in the United States were technically inactive.
15 years into the future -- assuming market conditions remain similar
to today's -- the situation is one that cannot be sustained,"