Saturday, February 7, 2009

Uranium Prices

Uranium prices went from under $20 per pound in 2004 to over $130 per pound in 2007. Even though prices have moderated and are currently trading under $50 per pound; why did the price of uranium increase so dramatically? Well the answers are steeped in the principles of supply and demand.

An interesting article on uranium prices shows that on the demand side, since a number of new power plants are coming on line, and with the prices of oil increasing, electric generating utilities are switching from generating electricity from oil (or coal for environmental reasons) to generating electricity using uranium. Hence the demand curve was shifting out to the right, and uranium prices are increasing. On the supply side, current production is less than current demand (with the difference being made up from using uranium from Cold War weapons), so this production difference is in essence shifting the supply curve to the left. The article mentions that it takes about 10 years to get a uranium mine up and running, so even with entry there is a significant lag between the increase in price and the response on the supply of uranium.

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