Uranium Primer - Uranium Contract Pricing
For deliveries under long-term uranium contracts, there are two prevalent pricing mechanisms:
• Specified Pricing, in which the price is either a fixed price, a series of fixed prices, or a base price plus adjustment for inflation to the date of delivery. The adjustment mechanism is usually either a combination of published indexes, or a fixed annual percentage rate. This mechanism was used almost exclusively during the nuclear industry’s infancy. It was first typically used in sales of steam turbines and electrical equipment to utilities, and was later adapted to the sale of nuclear fuel.
• Market-Related Pricing, in which the price is based on the uranium spot market price at or near the time of delivery, and/or some other published market index, such as the average US import price. In most instances, the price is the market price less a discount (or plus a premium). The discounts are usually fixed, but in some cases are variable, increasing as the market price increases. Market-related price mechanisms frequently include a floor price below which the contract price may not fall. The floor, which protects the seller, is usually either base adjusted for inflation, a fixed price, or a production cost-related mechanism. In some cases, the floor used has been a government-specified floor, which is the official floor price of the country that has jurisdiction over the producers’ production and marketing operations. Market-related price mechanisms also frequently includes a ceiling price above which the contract price may not rise. The ceiling, which protects the buyer, is usually a base adjusted for inflation or a fixed price.