Uranium – market reactions

October 24, 2018

Uranium prices were crushed by about 35% over the past three years, but more recently prices have been making a comeback. Market forces have punished uranium investors leaving many disillusioned with the industry’s prospects. However, a recent shift in supply and demand fundamentals, as well as a change in perception, have driven uranium prices to two year highs. If the inflection point has passed a long-term uptrend may be underway.

In 2011 the Tohoku earthquake off the pacific coast of Japan caused a major tsunami and environmental disaster at the Fukushima Nuclear Power Plant. Following this incident nuclear power was shunned internationally, and prices plunged, as power plants were shut down in Japan, Germany and Italy. However, the closest nuclear power plant to the epicentre of the earthquake was the Onagawa Nuclear Power Plant, 37 miles closer than Fukushima. Onagawa was able to withstand the tsunami without damage or leakage, and hundreds of local resident even used the Onagawa plant to seek refuge from the disaster. The superior design and construction of Onagawa shows that nuclear power can be safe, and provide a reliable source of clean energy.

Recently the narrative has been shifting as many countries look to increase capacity and construct new reactors. China has 38 operating reactors and 19 more under construction, Russia has 35 nuclear reactors and 7 under construction. Japan shuttered all 54 of its nuclear reactors following Fukushima, but recently has brought 5 back into operation with 21 restarting applications pending. Globally there are 57 nuclear reactors under construction and 448 currently in operation. Germany is facing a backlash from environmental groups calling to open closed nuclear plants to replace dirty energy sources. Even Saudi Arabia has plans to build two large nuclear reactors. Since more than 25 reactors are due to come online in 2018-19 the demand fundamental are solid, and the supply side gives further reason to be bullish.

In July the US Commerce Secretary, Wilbur Ross, launched an investigation into uranium imports citing potential threats to national security, ultimately this investigation could lead to tariffs and other measures. US uranium production was 2.4 million pounds in 2017, down from 43.7 million pounds in 1980. US officials believe the domestic uranium industry has been decimated by poor policies and unfair global trade practices. The US generates 20% of its electricity from nuclear energy, and it is heavily reliant on uranium imports from Russia, Kazakhstan and Uzbekistan. Earlier this year Cameco, the world’s largest public uranium company, shut operations at two major mining sites, McArthur River and Key Lake.

To summarize, nuclear reactors are increasing in number and capacity, and major miners are shutting operations while the world’s biggest uranium consumer is reordering the global supply chain amid geopolitical tensions. The uranium market invites investors to read the writing on the wall.

 

Disclaimer: Please note that while Valbury Capital has made every attempt to ensure the accuracy and reliability of the information provided in this document it can give no warranty of any kind. The information provided is intended to be of a factual nature only and is not intended to amount to investment advice or to contain any form of investment recommendation. No person should rely on or use the information provided to form any investment decision