Uranium radioactive for investors

But new plants in Asia may spark recovery

NEW YORK •No major commodity had a worse 2016 than uranium. In fact, the element used to make nuclear fuel has had a pretty dismal decade.

Prices tumbled 41 per cent last year, touching a 12-year low below US$18 a pound in November, according to Ux Consulting Co., which compiles market data. The slump was the seventh in nine years. The rise of nuclear power has slowed as utilities shifted to cheaper natural gas for new generators. And after the 2011 Fukushima disaster, safety concerns led big uranium buyers including Japan and Germany to shut down or decommission reactors.

“It’s the world’s best asset in the world’s worst market,” said Leigh Curyer, chief executive of NexGen Energy Ltd., a Vancouver-based uranium producer. “I don’t think there’s a mine profitable at current spot prices. This short-term spot price isn’t reflective of the cost of producing a pound globally.”

The outlook isn’t entirely bleak. Losses are forcing uranium mines to cut production or close, which may eventually create a supply crunch, while accelerated building of nuclear plants in China and India could help revive demand. But it may take awhile for those developments to take hold, according to a report last month from Morgan Stanley, which said it can’t identify any medium- or long-term driver for prices.

Uranium extended its fade last year even as most other raw materials recovered. The Bloomberg Commodity Index of 22 items posted its first annual gain since 2010, advancing 11 per cent. Natural gas futures rebounded from a 17-year low in March to gain 59 per cent last year, while zinc, oil and sugar rose more than 20 per cent.

The 2011 earthquake and tsunami that crippled Tokyo Electric Power Co.’s Fukushima Daiichi power station brought the uranium market to its knees. Japan shut all its nuclear plants for safety checks and local resistance slowed restarts to a crawl. The disaster also forced a rethink in other countries. Germany decommissioned reactors and is shifting to other fuels, including cheaper renewable sources.

Japan has enough stockpiles to power its reactors for at least six years, Ux Consulting said in early November, compounding a surplus that has continued to drive uranium prices lower. Only two of 42 operable reactors in Japan are currently running. While forecasts for further restarts vary, BMI Research said in a note Thursday that public opposition may leave the country with only 10 reactors online by 2026.

While prices remain near multi-year lows, they had rallied by Dec. 31 to US$20.25 a pound as utilities bought cheap supply, according to TradeTech, a Denver-based consultant.

Comments by Donald Trump also influenced the market. In a tweet, the president-elect said the U.S. needs to “greatly strengthen and expand its nuclear capability,” a reference to America’s nuclear arsenal that prompted Russian President Vladimir Putin to say his country would respond to any buildup. Prices rose even though Mark Hibbs at Carnegie Endowment for International Peace’s Nuclear Policy Program says both countries have more than enough enriched uranium to expand their cache of missiles.

Still, the gains helped buoy some producers, including Canada’s Cameco Corp. Shares of the Saskatoon-based company rallied more than 40 per cent since the end of October, though the firm still is worth just about half what it was three years ago.

Longer term, there is a glimmer of hope for uranium. More than 60 reactors were under construction globally as of April, according to the World Nuclear Association.

China is the most ambitious, with plans to boost its nuclear power capacity more than 70 per cent by 2020. In India, the government plans to expand capacity 29 per cent by 2019. Seven reactors are under construction in Russia, according to the International Atomic Energy Agency. In the U.S., Trump’s advisers are seeking to keep aging plants online longer, according to an internal document by the Energy Department last month.

In Japan, nine reactors should be in operation by the end of this year, though each still faces some local and legal opposition, according to Daiwa Securities Co. David Wang, an analyst at Morningstar in Chicago, is even more bullish. He expects as many as half of Japan’s nuclear reactors will be online by 2018.

Forecasts vary as to when prices break out of their doldrums. In a December report, Morgan Stanley said spot uranium will remain stuck near US$19 this year, rise to US$21 in 2018 and average US$24 by 2019. The bank had the lowest forecast for next year in a Bloomberg survey of five analysts, with the average at about US$23. By 2019, uranium may reach US$55, a separate tally of four analysts forecasts showed.

Willem Middelkoop, founder of Netherlandsbased Commodity Discovery Fund that returned 70 per cent last year, said he expects the spot price to return to at least US$30 this year — and rise substantially in the longer term because of the nuclear-power projects being planned globally.

“Uranium will be in really high demand because so many nuclear reactors are being planned in Asia and all around the world,” Middelkoop said. “We expect real stress in the uranium market after 2020. We could see uranium prices of $100 and higher.”