URANIUM PRICES MAY FINALLY BOUNCE BACK.
MARKET REBOUNDS
Is the long-awaited rebound currently occurring in the uranium market for real or just a tease?
Ever since the Fukushima nuclear disaster in March 2011, uranium has been off investors’ radar. It is not hard to see why since supply has been running well ahead of demand with Japan’s reactors shut down since the accident. Even the promise of soaring Chinese demand in a few years could not change the negative sentiment overhanging this sector.
Until recently, at least. Since bottoming out at US$28 a pound over the summer, the uranium spot price has jumped 57%, reaching US$44 this week. It is one of the only commodities to perform consistently well in a period marked by huge volatility.
The uranium market received a big shot in the arm earlier in November, when Japan finally green-lighted the restart of two of its 48 idled reactors. But there were signs of activity picking up even before that, as utilities jumped into the market and bought more uranium. As a result, sellers are less desperate and are pushing for higher prices.
“Things are moving in the right direction. But it’s still very early stage, so I think there’s quite a bit further to go,” said Robert Gill, a portfolio manager at Lincluden Investment Management.
Uranium equities have not performed as well as the spot price, a sign that many investors remain skeptical. But the uranium bulls maintain the
It appears more supply will be needed soon
turnaround is just starting.
Industry insiders said the marginal cost of uranium production is about US$65 to US$70 a pound. That suggests both the spot price and the long-term price (currently US$45) have a long way to go to encourage more supply.
Many uranium projects have gone nowhere in recent years because prices are simply not high enough to justify building them. But it appears more supply will be needed soon. In addition to further Japanese reactor restarts, the World Nuclear Association said there are 71 new reactors under construction worldwide, 27 of which are in China. And a long-running U.S.-Russia agreement in which the latter supplied commercial uranium from dismantled nuclear warheads has come to an end, removing a key source of supply from the market.
Some analysts expect demand to overtake supply around 2017, though the precise date will depend on how quickly Japan restarts its reactors. That process has taken far longer than expected and more delays would not shock anyone. Dundee Capital Markets analyst David Talbot said sentiment toward uranium should start to turn more positive once the first of the Japanese restarts is up and running and investors see that it is for real. But, ultimately, he thinks global demand growth suggests the price has to move significantly higher over the next few years.
“My long-term price is still US$65. I think that’s a reasonable long-term price that gets some of these [idled] uranium operations back up and running,” he said.
Mr. Talbot also noted that a lot of uranium sales contracts that were signed last decade are coming to an end over the next few years. If the utilities sign a lot of supply deals in a short period, it could have an enormous impact on price. Some doubters will continue to scoff at that, noting that uranium supply remains ahead of demand and should be for some time. But for the first time in a long time, the bulls have the market’s attention.