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Uranium Has That Healthy Glow Again

It has been just over a decade since the Fukushima disaster and the nuclear-fuel industry is cautiously betting prospects for its products have finally recovered.

Some of the optimism can already be seen in the share price of Canadian company Cameco, CCJ +2.15% one of the largest miners of uranium behind No. 1 producer Kazatomprom, a state-run company in Kazakhstan. Cameco’s U.S.-listed shares have risen almost 180% over the past year, to levels not seen since 2014.

The last time Cameco saw year-over-year net income growth was 2015, when the spot price of uranium oxide hovered above $35 a pound for most of the year. Since then, the commodity’s price has mostly stayed below $30 a pound, though it seems to be recovering quickly. As of Monday, the spot price was $29.60 a pound, up 7.3% in one week, according to data from nuclear fuel market research firm UxC. Uranium is mostly sold on contracts with utilities rather than via the spot market. Jonathan Hinze, president of UxC, notes that among nonsubsidized mines, the all-in cost of production can range anywhere from $10 a pound up to $38 a pound.

The supply-demand picture appears unchanged from last year, but this masks the underlying dynamics of an opaque and long-cycle industry. In 2021 global uranium demand is expected to shrink slightly to 178 million pounds from 2020’s 181 million pounds, with supply—both from mining and from secondary sources—staying constant around 166 million pounds, according to UxC. Though the numbers make it seem like demand exceeds supply, there are significant uranium sources that utilities, suppliers and intermediaries have stockpiled over the years.

Another source of uncertainty is in fuel supply from secondary sources, including so-called tailings from previously processed uranium that can be enriched. Some countries also supplement their uranium needs by reprocessing used fuel rods rather than buying uranium newly mined from the ground.

While estimating the exact global stockpile is tricky, there are some indications that inventory is starting to get depleted. Over the past five years, roughly 815 million pounds of uranium oxide equivalent have been consumed in reactors, while 390 million pounds have been locked up under long-term contracts with the uranium producers, according to UxC’s estimates. Expectations for so-called uncovered uranium requirements, the amount that nuclear power plants require but don’t have contracts for, aren’t very high for 2021 but are expected to reach 33% of demand in 2025 and 81% by 2035.

Some organizations are bullish about nuclear power’s prospects, but the power source’s future is tough to predict. A push toward zero-emissions goals around the world creates a bullish backdrop. Fears of nuclear power following Fukushima still loom large in Japan and in the western world, though. Adam Rodman, chief investment officer of Segra Capital, who oversees a fund dedicated to nuclear energy-related stocks, says it is possible to be bullish on uranium miners even after modeling sharp declines in nuclear generation in the U.S. and parts of Europe. “We’re facing a structurally undersupplied market over the next couple of years, even the next decades,” notes Mr. Rodman.

The World Nuclear Association estimates roughly 50 nuclear reactors are being constructed in 16 countries compared with about 440 operating today, including substantial capacity in China and the United Arab Emirates. Yet nuclear power projects are notorious for being canceled or postponed, often running into cost overruns and delays.

Rather than pinning all hopes on the future, a realistic reason for optimism is in the steady cutback of uranium mining in recent years following years of oversupply. Since 2016, the world has progressively dug less and less ore with the exception of 2019, when supply was bumped up only slightly, according to data from the World Nuclear Association. Compared with 2016, the world mined 12.2% less uranium in 2019.

For uranium, hopes for better market conditions spring not from a bullish future but from the bleak past.

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