| dc.description.abstract | In this thesis paper, we model price reactions to demand shocks for Uranium Oxide, U3O8. We ar-
gue that these demand shocks will emerge from operational decisions regarding the enrichment
of Uranium for use in nuclear reactors, and that the ensuing price reactions should range from
significant to extreme. In our calculations we employ the Equilibrium Displacement Model (EDM)
to calculate how the endogenous variable %∆P changes as a result of demand shocks for U3O8,
created by price increases for our exogenous variables. The exogenous variables are prices of
the services that are required in the enrichment process, namely Conversion and Separative
Work Unit, (SWU). The demand shocks we modeled, result from calculations of the December
2022 profit maximizing quantities of these services and U3O8. The calculations are based on
recent market prices and potential future supply and demand scenarios.
The research aim of this thesis is to determine the magnitude of the increases in price for U3O8
caused by these exogenous variables in current, and possible future states of the Uranium mar-
ket. Furthermore a secondary aim of the research is to determine whether or not the price
reactions predicted by the EDM are supported by the fundamentals of the Uranium market.
The results in this thesis are derived primarily from the economics of Uranium enrichment, and
focuses on the processes and costs required to enrich and produce Low Enriched Uranium, (LEU)
for fuel fabrication. We begin by analyzing historical price data supplied by UxC LLC, and calcu-
late the costs associated with enriching U3O8 at various tails assays. The purpose of this, is to
quantify likely and possible demand shocks arising from the primary assumption of this thesis;
That enrichment companies as well as utilities seek to maximize their profits by amongst other
approaches, minimizing their fuel costs. In addition to the demand shock resulting from this
strategy, we also determine other potential shocks to demand, based on a background and lit-
erature review. These demand shocks served as inputs into the EDM, with which we calculated
price reactions to these shocks.
This thesis models three separate demand scenarios, one based on the current state of the
market and two based on possible future states. The results for the most likely scenario show
the price for U3O8 increasing to levels that should incentivize the expansion of mine capacity to
sustainable levels. Currently this capacity is incapable of producing enough material to support
neither the current, nor the future fleet of nuclear reactors. In the case of the two hypothetical
scenarios the research show price reactions surpassing historical highs. Although some of the
price-levels predicted by our research has never been seen, our research suggests they still could
occur in the form of partial equlibria in the short term, and highly profitable levels for miners in
the long term. When comparing our results to recent price increases for other industrial min-
erals and energy commodities like Lithium Carbonate and Gas, the results for these scenarios
seem less extreme. Finally, based on the price data from UxC, we were also able to determine a
theoretical crossprice-elasticity of demand for U3O8 in relation to SWU.
The implications of our research are clear. For extraction capacity to be able to meet the quantity
requirements of both the current and future reactor fleet, price for U3O8 must rise significantly
from the December 2022 levels. Due to the long lead-times and the high capital requirements for
mining projects, this increased price must be reflected in long-term contracts signed with mining
companies. Furthermore, the magnitude of committed purchases of U3O8 must be expanded if
reliable supply of the mineral is going to be avaliable for the reactor requirements in the future. | |
