Uranium is a “bread and milk” commodity, Haywood Securities says

On June 18, U.S. Republican presidential candidate John McCain called for the construction of 45 new nuclear reactors by 2030 to lessen his country’s dependence on foreign oil. He also called for cutting the time it takes for companies to obtain the permits necessary to build them.

Are we on the verge of a nuclear renaissance? Certainly rising energy prices and environmental concerns over hydrocarbon-based energy production in the form of coal, oil and gas are giving some weight to the view that nuclear power generation could become a more attractive alternative.

That’s the view of a bullish new report on uranium from Haywood Securities and it is calling for a recovery in the uranium spot price in the second half of the year, moving from the current US$57 per lb. level to as high as US$80 per lb in 2008 and US$100 per lb in 2009.

Analyst Geordie Mark predicts uranium prices will remain at US$100 per lb in 2010 before easing to US$95 per lb. in 2011 and 2012.

Currently there are 439 reactors in operation around the world today, with 36 under construction, 93 planned and 218 proposed.

In the United States alone, nuclear energy capacity grew more than 20% from 1973 and 1979, and by 8% between 1979 and 1990.

“Such rates of growth are likely to be seen in multiple countries over the next decade or so, especially in China, India and Russia, and are needed to facilitate economic growth in energy-stretched nations such as South Africa,” Mark writes in his latest report on the sector.

Demand for electricity is forecast to grow by an average of 3% a year between now and 2030, he maintains, and demand will be the greatest in emerging economies such as India, China and Russia.

Uranium demand far exceeds primary production. Last year, production of the commodity grew to 107.1 million lbs while demand reached 167 million lbs. This year Haywood believes primary production will climb 6% to 113.5 million lbs.

Primary uranium production will continue to fall short of future reactor demand, Haywood states.

The supply deficit on the primary production side “has led to a protracted period where this deficit is drawn from secondary stockpiles,” the report notes. But access to secondary stockpiles will decline in the future, “as it is withdrawn to meet domestic demand obligations.”

Secondary supplies are taken from a number of sources such as natural uranium, depleted uranium and enriched uranium and plutonium, Haywood explains. The largest amount of secondary uranium comes from stockpiles of material that have been processed already, for example: highly enriched uranium, highly enriched plutonium, depleted uranium tails and spent fuel.

The U.S. currently has 32 reactors either planned or proposed. By 2020, China aims to increase from 8.5 GWe (gigawatts electrical) to 4060 GWe. And Russia says it wants to build two nuclear reactors every year for the next 15 years. Over the next 12 years, India wants to expand capacity to 20 GWe and South Africa to more than 25 GWe.

But it will be in the U.S. — with its existing infrastructure and regulated permitting regime — where we will see the greatest number of new uranium companies emerging in the next three years, Haywood argues, particularly in the states of Wyoming, Texas, Colorado and Utah.