Uranium powers on, whether we like it or not
- Uranium spot prices have firmed over the past month to close to $40
- China and India are the biggest customers as part of the energy changeover
- Canadian producers are at the epicentre of the industry
By Adam Courtenay
Uranium gets little fare on the global commodities investment stage – or if it does, we tend to hear very little about it. For historical and ethical reasons, few are willing to admit they are going long on uranium, but the improving spot price and the recent strength of uranium mining shares and ETFs suggests plenty of investors are doing just that.
There have been three well-versed reasons why uranium is enjoying a quiet rise that nobody wants to talk about too loudly. The first is that India and Canada recently signed a huge bilateral agreement on supply that has given an enormous fillip to the Canadian uranium miner Cameco; the second is that Japan has given the go-ahead to restarting the first nuclear reactor since the disaster at Fukushima and the last catalyst is China’s stated intention to build nuclear power and to approve nuclear reactors.
The last moves interests me most – almost daily we hear about China working hard to wean itself off coal – China’s coal imports fell 42% over the first quarter of the year, compared with the same time last year, according to customs figures released on April 13.
This is partly a function of Beijing’s recently declared “war on pollution”, partly to do with weakening demand but the fact remains that power generation from traditional “dirty” sources is diminishing – in China the consumption of hydro electricity rose by 10% over the quarter, compared with the same time last year. Hydro power is now reportedly over 50% of the market as coal. Hydro accounted for about 22% of China's total power capacity by the end of 2013, and it's growing fast.
China is looking to build up to 100 new reactors in the next decade, which surely must affect supply. It is in the midst of a changeover in energy generation. China’s low-carbon plan means the country is reportedly need to boost its nuclear power capacity by as much as 200 gigawatts – a significant boost from 2014’s 20 gigawatts.
Given the deal with India, there is talk now that Canada might become the Saudi Arabia of the 21st century, but this sounds a tad on the overblown side. On April 15, Cameco solidified a deal to sell 7.1 million pounds of uranium concentrate to India until 2020. Canada is where the action is at. It can offer millions of pounds of uranium from its high grade, uranium rich Athabasca district in Saskatchewan.
Australia has as much uranium as Canada, but fewer mines. It has a three mines policy, the two biggest being the Ranger mine, owned by ERA, which represents just over 50% of Australia's total uranium production. The Olympic Dam mine is owned by BHP and represents approximately 39% of Australia's uranium output.
Uranium is coming: China is in the midst of a fossil-fuel changeover designed to bring some relief to its smog-choked cities. Photo: iStock
So far, says uranium proponents, the uranium spot price has outperformed the S&P 500 Index this year. It’s close to $40 per pound – an 11% increase this year and well above the $28 per pound it was in mid-2014. the spot market rose in March, with total volume amounting to 6.9 million pounds of U308 across 32 deals. That’s the highest monthly level seen over the past three years, and an increase of 2.5 million pounds.
This should be put in perspective – the price of U308 is nowhere near what it was in 2006-2007 when it was well over $130 a pound, and many say there are significant stockpiles that may keep the price down – JPMorgan Chase analyst Mark Busuttil recently cautioned that uranium’s new-found favour does not come without strings attached. He believes that both Japan and China have significant build ups of material that will not bode well for future demand growth.
In terms of uranium pricing, JPMorgan expects to see a rise in price this year to $42 a pound of U308. Beyond that, the firm believes that by 2016 the spot price will be $50 a pound, but will pull back again in 2017 as stockpiles start to make a difference in supply.
Uranium oxide spot price trend over 20 years
But the demand for the commodity does appear to be on the rise. Both India and China desperately need power and Prime Minister Narendra Modi is focused on nuclear power as a solution for India’s growing needs. India has 21 active nuclear power plants, with six new ones coming on board in 2017 and 33 in the planning stage. China currently has 22 reactors in operation and another 26 under construction. It’ll need to approve at least 10 more in the next two years in order to reach its 58 gigawatt-capacity target for 2020. Uranium seems to be an unstoppable force, despite the dangers it holds both ethically and politically.
Whether buying into Uranium is ethical or not – that is the case investors themselves must decide. There are a number of problems of selling uranium to anyone, let alone a non-signatory to the Nuclear Non-Proliferation Treaty and or a nation that has nuclear weapons capability. But the fact is that with carbon footprints needing to fall around the world, uranium – in some form or another – will be part of the energy mix. The are now enough signs that changeover to U308 has already started.
– Edited by Robert Ryan
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Adam Courtenay is a business writer and editor with TradingFloor.com, the home of social trading.