It’s been a long road back for uranium since the 2011 Fukushima nuclear reactor melt-down in Japan and there could be further to travel despite a promising uptick in the price of the fuel after last week’s decision by the U.S. President, Donald Trump, to not ban imports of the material.
Apart from safety considerations uranium has a very basic problem, supply continues to exceed demand with both sides of the equation sliding lower but with demand falling faster.
The net result is a price stuck in the cellar and likely to stay there for a few more years, at least.
Up One Day, Down The Next
A recent analysis of the uranium equation best tells the story of what is arguably the world’s most frustrating commodity, up like a rocket one day and then down spectacularly the next.
According to Macquarie, an Australian-based investment bank, total demand for uranium has been over-powered by supply for the best part of the past decade with between 23 million pounds and 56m/lbs a year being stockpiled with a predictable detrimental effect on the price.
But the real problem for uranium, and investors in a fuel which promises to deliver carbon-free energy, is that on a global basis reactor closures after Fukushima have outstripped reactor starts.
Total demand in 2010, the year before the Fukushima incident, was 163m/lbs, well short of total supply at 195m/lbs. By 2016 total demand had fallen to 151m/lbs and total supply had risen to 199m/lbs.
Mine Closures Helping
Mine closures, particularly in Canada, have cut supply but the fall in demand has kept the price for uranium traded on the short-term market below $30 a pound.
For U.S. uranium producers the price collapse has been particularly damaging because most of their ore has a lower grade than international rivals or, in the case of some big mines such as Australia’s Olympic Dam project, the uranium is produced as a by-product of copper production.
Last year, two U.S. uranium producers complained to Commerce Secretary, Wilbur Ross, that imports were a threat to national security. He agreed, but President Trump did not, declining to impose a limit on imports while asking for a 90-study into ways to revive and expand U.S. nuclear-fuel production.
That decision hit the share prices of the U.S. uranium stocks and provided a modest boost to international miners of the fuel.
Core Problem Of Excess Supply Not Fixed
The core problem, too much material chasing a slow-growing (or even declining) market, has not been solved despite claims from supporters of the industry that better times are just around the corner.
The truth is that better times have been out of reach for decades with three nuclear accidents weighing heavily on public sentiment even as the search for carbon-free energy accelerates.
The 1979 Three Mile Island power plant radiation leak in Pennsylvania was the first big set-back for nuclear power. The Chernobyl meltdown in 1986 compounded the poor image, and Fukushima delivered a near-fatal blow, powerful enough to see some countries opt to close their existing reactor fleet and others to go slow with expansion plans.
Confidence has been slowly returning to nuclear power which remains an important source of base-load power in a number of countries such as China, Russia and France, as well as supplying about 20% of total U.S. electricity production.
Speculators Taking Early Positions
Well-funded speculators have been placing bets that this time the uranium recovery is real and sustainable with a British company, Yellow Cake, leading the way in accumulating uranium (which is sometimes called yellow cake in its traded form) in the belief that the market has bottomed.
Over the past 18 months Yellow Cake has amassed a uranium stockpile measuring 9.62m/lbs, largely by acquiring material from the mining arm of the government of Kazakhstan.
Yellow Cake’s most recent purchase of uranium was on June 3 when it acquired 1.175m/lbs of material at a price of $25.88, taking its average price since embarking on its buy-and-hold strategy to $21.68/lb, comfortably below the latest short-term price of $26.15/lb.
Yellow Cake Is A Stock To Watch
Listed on the London stock exchange Yellow Cake’s share price has broadly tracked the price of the uranium it has in a Canadian storage facility.
In theory, and assuming no more setbacks for nuclear power, the supply/demand equation could re-balance over the next few years as a result of a continued fall in the supply of freshly-mined material and a modest rise in demand.
Next year, Macquarie expects total supply of 165m/lbs (down from the 173m/lbs supplied this year) while demand next year should total 162m/lbs (down from this year’s 168m/lbs).
The potential return to more balanced conditions could see the uranium price rise to $29.50/lb by the end of this year, according to Macquarie, and then up to $31/lb next year which sounds promising but is well short of the $75/lb just before the 2011 Fukushima melt-down and a fraction of the 2007 peak price of $135/lb.
The uranium price trend might be up, but only just.