


DATE:	January 2017

SUBJECT:	Research to support market projections for economic modeling

TO:	Health and Environmental Protection Standards for Uranium and Thorium Mill Tailings Rulemaking Docket ID No. EPA-HQ-OAR-2012-0788

FROM:	Katherine Heller, RTI International


The analysis of estimated economic impacts of EPA's Proposed Revisions to the Health and Environmental Protection Standards for Uranium and Thorium Mill Tailings Rule (40 CFR Part 192, hereafter referred to as the proposed rule) includes an assessment of potential impacts of the proposed rule on uranium markets and on firms that own ISR uranium facilities. To prepare for these analyses, we first created a projection of baseline (without the proposed rule) uranium market conditions when the rule would take effect. The EPA estimated that the rule, if finalized, would take effect in 2023. Thus, EPA reviewed publicly available projections regarding future conditions in the domestic market for uranium to inform its assumptions. 

Background: Domestic Uranium Market in 2015-2016. Conditions in the domestic market for uranium have been difficult for uranium producers due to several factors: 
 a lingering global economic recession since about 2008; 
 the effect of the earthquake, tsunami, and partial meltdown of the Fukushima-Daiichi nuclear power plant in Japan, in 2011; 
 increased supply and thus relatively low prices of substitute energy sources, especially natural gas due to the increasing use of hydraulic fracturing; and 
 the fact that the U.S. share of global uranium supply is relatively small and thus U.S. producers have little influence over the market price of uranium. High levels of supply from mines in Kazakhstan, Canada, and Australia have driven the price down.
Because of these factors, the price of uranium has declined significantly in recent years. For example, the U.S. Energy Information Agency (EIA, 2016) 2015 Uranium Marketing Annual Report shows that in 2008, the spot price for uranium averaged $88 per pound U3O8e, and by 2015 the spot price averaged only $37 per pound. In addition, the uranium analysis firm Ux Consulting Company, LLC (www.uxc.com) shows that uranium spot prices have continued to decline, from about $36 per pound U3O8e in October 2015 to about $22 per pound in early 2017. Contract prices, which EPA considers more representative of the prices that uranium firms would consider when making investment and operating decisions, are generally less volatile than spot prices. Since 2011, the contract price has generally been somewhat higher than the spot price and has also generally declined during the period, from about $56 per pound in 2011 to about $46 per pound in 2015 (EIA, 2016).

Projections of Market Conditions: Going forward, most uranium market analysts and uranium firms consider that factors favor improving market conditions and increasing prices. Underlying factors that are expected to improve conditions for domestic uranium suppliers include:

 Growing demand for energy, especially in the developing world;
 Nuclear power plants planned and under construction, especially in China (which plans to build 8 new reactors per year from 2016 to 2020) and India;
 Declining quantities of unconventional sources of uranium;
 Japan bringing more of its nuclear reactors back online.
Because of these factors, many analysts project that the market price for uranium will stabilize and begin to recover. The following table summarizes several publicly available projections of market conditions in general and market price in particular, over the next several years, which informed the assumptions used in EPA's market model and firm-level impact analysis in its Economic Analysis document.

Expert(s)
Article date
Projection
Date of projection
Notes
Chang, Cantor-Fitzgerald
Dec 2015
Increasing price to $70/pound, supply deficit
Companies: early 2020s
Analysts: 2018-2021
Summary of 2015 Cantor-Fitzgerald uranium conference
Chang, Cantor-Fitzgerald
August 2016
Uranium supply deficit, utilities buying on spot market while prices low, then increasing prices; below $40/pound through 2017
2017
forecast in J. Aspa Investing News Network article
Goldie, Salmon Partners
Nov 2015
Spot prices peak over $70 1Q 2018, then retreat to long-term average over $50/pound
Beginning 2018
Forecast in K. Moran Investing News Network Article
Wang, Morningstar
June 2016
$65/pound
2019
Elmquist Bloomerg article
Reagor, ROTH Capital Partners
May 2016
$50-$60/pound
2018-2019
Interview in The Energy Report
Talbot, Dundee Capital Markets
Jan 2016
$65/pound
After 2016
Dundee Capital Markets Uranium Sector report
Minerals Council of Australia
2016
Spot price increase from $39.3 to $57.5 (2015$)
2016-2020

Bank of America-Merrill Lynch and BOM Capital
December 2015
Close to $60/pound
2018
In Reuters article

Conclusions: Based on the projections tabulated above, and with the recognition that any such projections are uncertain, the EPA assumed that domestic uranium production in 2023 would remain unchanged from 2015 levels, and market prices in 2023 would be approximately $55 per pound. To address the uncertainty, the EPA also examined scenarios assuming that the uranium company revenues were 10% lower (if prices were 10% below $55 in 2023) or 10% higher (if prices and production both increase by 10% by 2023). For more detail on these scenarios and the economic analysis, please see the Economic Analysis (EPA, 2016) document. 


References:
Aspa, Jocelyn. August 11, 2016. Uranium Price Forecast: Going Up? Investing News Network. http://investingnews.com/daily/resource-investing/energy-investing/uranium-investing/uranium-price-forecast/ Accessed December 14, 2016.
Chang, Rob. June 12, 2015. Highlights from Cantor Fitzgerald's 2nd Annual Global Uranium Conference. http://www.cantor.com/press_releases/Highlights_from_Cantor_Fitzgeralds_2nd_Annual_Global_Uranium_Conference_.html . Accessed November 16, 2016
Denina, Clara. December 28, 2015. Uranium Prices Set to March Higher as Climate Deal Boosts Nuclear. Reuters. http://www.reuters.com/article/us-uranium-prices-idUSKBN0UB0II20151228 Accessed by RTI August 8, 2016.
Elmquist, Sonja. June 7, 2016. World's Worst Commodity Forecast to Rally as Uranium Miners Cut. Bloomberg. https://www.bloomberg.com/news/articles/2016-06-07/world-s-worst-commodity-forecast-to-rally-as-uranium-miners-cut . Accessed June 8, 2016.
Minerals Council of Australia. September 2015. Uranium & Nuclear Forecasts.
http://www.minerals.org.au/resources/uranium/uranium_nuclear_forecasts    Accessed by RTI June 6, 2016. 
Moran, Kristen. November 12, 2015. Salman Partners: Uranium Prices to Rise from Now to 2018. Investing News Network. http://investingnews.com/daily/resource-investing/energy-investing/uranium-investing/uranium-news-uranium-prices-expected-to-increase-as-inventories-shrink/ Accessed December 14, 2016.
Moran, Kristen. December 1, 2015. Uranium Outlook 2016: Supply Deficit in the Cards. Investing News Network. http://investingnews.com/daily/resource-investing/energy-investing/uranium-investing/uranium-outlook-2016-supply-deficit/ . Accessed December 14, 2016.
Talbot, David. January 13, 2016. Uranium Sector. Dundee Capital Markets. http://berkeleyenergia.com/wp-content/uploads/2016/01/160113-Dundee-Securities-BKY-top-pick.pdf. Accessed December 14, 2016.
The Energy Report. May 10, 2016. When Will Uranium Emerge from the Shadow of Fukushima? https://www.streetwisereports.com/pub/na/when-will-uranium-emerge-from-the-shadow-of-fukushima .  Accessed August 8, 2016.
U.S. Energy Information Administration. May 2016. 2015 Uranium Marketing Report. http://www.eia.gov/uranium/marketing/pdf/2015umar.pdf .
U.S. Environmental Protection Agency. December 2016. Economic Analysis: Proposed Revisions to the Health and Environmental Protection Standards for Uranium and Thorium Mill Tailings Rule.
Ux Consulting Company, LLC. UxC Nuclear Fuel Price Indicators. https://www.uxc.com/p/prices/UxCPrices.aspx . Accessed January 19, 2017.

