Lately the uranium price has seemed to be on its way to a recovery. Kazakhstan’s plans to cut production buoyed the sector, and as of February 1 uranium was at $26.68 per pound, up 32 percent year-to-date.
However, more recently the uranium price has slid back, and as of February 20 it stood at $24.50.
Given the uranium market’s underlying fundamentals, its inability to rally is unsurprising. The 2011 Fukushima disaster has pushed the commodity into oversupply, and uranium inventory currently stands at about 1.4 billion pounds worldwide, according to UxC.
Global uranium demand is much lower — it’s estimated at 173 million pounds a year. Put simply, there’s currently enough uranium supply to last many years, the Economic Calendar states.
In a recent research note, Haywood Securities expands further on the uranium market’s underlying problems:
The rise in the price of uranium has come as a surprise to investors considering the underlying fundamentals do not seem to have changed; in fact, TEPCO’s announcement that they had declared Force Majeure on a key uranium delivery contract from Cameco Corp. (CCO-T) two weeks ago suggested a fall in the price of uranium was likely.
The announcement indicates that the start-up of nuclear reactors in Japan continued to be protracted. Given the performance of uranium over the last 3 months, it is unlikely investors are overly concerned at this stage; however, with the status of nuclear energy in Japan remaining uncertain, sentiment towards uranium remains clouded.
But what does that mean for the uranium price?
Haywood believes that until the status of nuclear energy becomes more clear, “sentiment towards uranium [will remain] clouded.”
Others are more optimistic. Tim Gitzel, president and CEO of Cameco (TSX:CCO,NYSE:CCJ), recently said that uranium is still very much needed, “perhaps even more so now that many (mining) projects have been delayed or cancelled due to low uranium prices.
“It’s a question of when, not if,” the uranium price improves, he added.
Similarly, FocusEconomics‘ February 2017 Consensus Forecast Commodities Update suggests that uranium supply will ease as more nuclear reactors become operational and production cuts occur. It’s calling for the uranium price to average $29.90 per pound in Q4 2017, and sees it picking up to $36.4 per pound in Q4 2018.
In short, while an improved uranium price is not guaranteed in the near term, it’s now looking increasingly possible that it could come sooner rather than later.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.