Re-examining uranium supply and demand: New insights

In this paper, we derive a simultaneous system of equations which aims at analysing the uranium supply and demand. In addition to reviewing and updating previous studies dealing with the uranium market analysis, in particular Amavilah (1995), the contribution of the paper lies in putting attention to some questions which are still either controversial or unanswered. They are especially related to the controversial hypothesis of the interdependence between uranium market and other commodities markets, both, with respect to the demand side, i.e. oil and coal markets, and the supply side, i.e. gold market. The paper also casts lights on electricity and uranium price effects on uranium demand as well as on the simultaneous interdependencies that may exist between nuclear consumption and nuclear installed capacity. The model is estimated for three different time periods which takes into account the major events that have influenced the nuclear-uranium development, that is, that have constrained the growth rate of nuclear generating capacity, i.e. oil crisis and nuclear accidents. This permits to show if uranium market reaction is independent or it is correlated with specific events associated with each time periods. The model was estimated by using the 3SLS method that correct for the presence of contemporaneously error terms correlation and for the existence of simultaneity bias in the model. Main results give evidence of significant correlation between uranium price and competing fossil fuel prices. They also point-out that uranium price is significantly correlated with the supply forces where supply is significantly dependent on gold prices. Moreover, results show that the electricity prices have a significant effect on the uranium demand only in the post-1990 period, probably following the worldwide electricity prices increasing trend. Further, our estimations show that uranium demand is significantly correlated with uranium price only in the period of nuclear major expansion. As for the nuclear electric consumption and the nuclear installed capacity, results show that they are simultaneously correlated and that the uranium demand depends on both of them, but only for the pre-1990 period. Interestingly, our results give evidence of low elasticities and inelastic reaction of independent model variables to exogenous variables fluctuations, except for the uranium price equation. Based on these results, some policy implications related to, first, the competitiveness of the uranium market and, second, to the supply-demand policy and the associated pricing mechanisms on the uranium market are discussed.