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Ending India nuclear trade ban seen bullish for uranium

LONDON (Reuters) - This weekend’s approval by a group of nuclear nations to end a ban on uranium fuel supplies to India is likely to lift the depressed uranium spot price, analysts and traders said on Monday.

A haul truck is seen carrying uranium ore out of Energy Resource Australia's Ranger uranium mine in Australia's Northern Territory in this handout photograph obtained September 2, 2008. REUTERS/Rio Tinto/David Hancock/Handout/Files

India’s nuclear reactors are currently running at 50 percent of capacity due to a fuel shortage and with plans to more than double its reactor fleet over the next 15 years Indian demand is seen growing substantially.

The 45 nations of the Nuclear Suppliers Group (NSG) on Saturday backed a U.S. proposal and adopted a one-off waiver of a 34-year-old global ban on nuclear trade with India, allowing New Delhi and Washington to do business.

Only Russia has continued to supply India with uranium.

Congressional approval is the final hurdle for the agreement, essential to India’s rising energy needs to power its booming economy.

“The deal needs to go through the U.S. Congress before any agreements that India has already signed with France, Russia and others become effective,” said Steve Kidd, director of strategy and research of the World Nuclear Association (WNA) in an email.

The deal could come up for a vote in Congress this month. In the meantime, India could open informal negotiations for nuclear reactors and uranium supplies.

“I think they will start looking at the spot market and then they will start signing long-term deals pretty quickly,” a uranium trader said.

The country aims to supply 25 percent of its electricity from nuclear power by 2050 and it has currently 6 reactors under construction expected to be completed in 2010, according to WNA.

Initially, India is seen buying uranium to get its nuclear reactor fleet, with 2 mid-sized and 15 small reactors, operating at full power. Reactors are running at around 50 percent, owing to a shortage of uranium.

“People have been expecting 2-3 million pounds to be purchased ... it could be enough to push the price up,” the trader said.

In 2007, turnover in the spot market is estimated by traders to around 10-15 million pounds.

The price of spot uranium hit a record of $136 per pound in June 2007, skyrocketing from just $7 in 2000 due to a revival of interest in nuclear energy.

But since its all-time high the spot price has slipped to $64.50 with little interest from investors and utilities.

“There is still plenty of material out there on the spot market but India is important in the medium and long term,” said another uranium trader.

It was uncertain how much inventory India would like to build up to feed its reactors, currently consuming around 500 tonnes per year or 1.3 million pounds, according to a Macquarie Bank presentation.

The investment bank estimated incremental demand in the first 12 months would be in the 1,000-1,500 tonnes uranium (2.6-3.9 million pounds) range. This would be enough to return to full capacity and build 6-12 months of stock, it said.

“However, we do not expect all this to be purchased in the spot market -- this could create a frenzy,” Macquarie Bank said.

Analyst Jamie Strauss at BMO Capital Markets said India could soon bring forward planning applications for a significant new build programme.

“This will then ultimately lead to a big new core order but this won’t really happen until 2012/13 at earliest,” Strauss said in an email.

Industry lobby group the Confederation of Indian Industry said it expected about $27 billion in investment in 18-20 new nuclear power plants over the next 15 years.

Russia has built all India’s plants to date and supplies them with fuel, Strauss said.

“I suspect they will be the largest beneficiary and the big orders will never be done on spot but behind closed doors.”