Nuclear Energy’s Limp Takes the Shine off Uranium

on Oct 8, 2012

When the earthquake and tsunami of March 2011 led to the crisis surrounding Japan’s Fukushima nuclear reactors, they also took down the price of uranium. The hesitance to resume nuclear operations not only in Japan but also elsewhere in the world has caused the demand for the nuclear feedstock to diminish. Recently, uranium has reached a two-year low, but according to industry executives, a price rally should be expected in the long term, The Financial Times reported on 4 October 2012.

When the Fukushima nuclear energy disaster unfolded 18 months ago, even the most optimistic investors knew the uranium market was in for a rough ride. The decision by the Japanese government to gradually phase out the use of nuclear power before 2040 contributed to investors’ sentiment against the commodity. Indeed, from about $136 (£84.5) a pound before the nuclear crisis, last week the spot price for uranium sunk to a two-year low of $45.75 (£28.4) a pound. And while analysts had anticipated such a slump, they have also said that a combination of supply and demand factors will lift uranium prices in a few years.

!m[With Uranium Prices at a Low since Fukushima Disaster Industry Executives Expect Rally ](/uploads/story/536/thumbs/pic1_inline.png)While buyers wait for a sign that prices are bottoming before making purchases, uranium mining executives are convinced that investors are making a mistake by focusing on the industry’s setbacks. They say that while developed countries are turning away from nuclear power, new reactors are being constructed in emerging markets, which would, again necessitate increased supply of uranium and boost the price of both the raw material and the share prices of leading mining companies.

According to the World Nuclear Association, there are currently 65 nuclear reactors under construction around the world and another 160 in the planning stage. China alone accounts for 26 of the reactors under construction and 51 of the planned reactors, as the world’s second biggest economy has set to increase its share of nuclear power generation from two to five per cent by 2020. Over the next few years, new reactors are also expected in India, Russia and South Korea.

Another “uranium renaissance” factor, pointed out by nuclear industry consultancy UxC, is that a number of long-term contracts, which account for the majority of the sale agreements between uranium miners and utilities, expire around 2016-17. Uranium bulls, hope that these factors, both linked to rising demand, will coincide with tight supply. Lower supply is also expected on the back of next year’s expiration of a treaty between the United States and Russia, which provides uranium from decommissioned nuclear weapons and accounts for about 16 per cent of total demand and supplies half of US utilities’ needs.

Another factor that may affect uranium supply is the decreased appetite for the capital intensive development of new mines, which has increased uncertainty about future production levels. The uranium price dip has not helped, with Canadian miner Cameco (TSE:CCO) saying it needed a minimum $62 (£38.6) a pound to develop its uranium assets. According to Colin Hamilton, commodities analyst at Macquarie Capital in London, to persuade the producers to return to the market, the uranium price has to move towards $65-$70 (£40-44) a pound. But referring to previous market moves, especially those in 2007 and 2010, a fast and drastic turnaround in the commodity price is possible, market experts point out.