Energy

Uranium Investing

At the end of last year, analysts and experts approached the uranium outlook for 2016 with cautious optimism, and were hopeful a uranium price recovery would be in the cards for the year.  While they were right to be vigilant about the kind of year uranium would have, its price did not fare as well …

At the end of last year, analysts and experts approached the uranium outlook for 2016 with cautious optimism, and were hopeful a uranium price recovery would be in the cards for the year. 
While they were right to be vigilant about the kind of year uranium would have, its price did not fare as well as anticipated.
Last year, some expected a price recovery between $50 and $55; however the uranium price plunged to a 12-year low in October, and has since gone lower. With just under a month until the new year, uranium prices have fallen to $18.25, compared to $36 per pound at the end of 2015.
Needless to say, it’s been a tough year for the uranium sector, evident in price and supply struggles from some of its top producers. Rob Chang, managing director and head of metals and mining at Cantor Fitzgerald, told the Investing News Network (INN) that 2016 felt “like we are at the point of maximum pessimism.”
To get more insight on what impacted the uranium market in 2016, Chang elaborated with INN, along with Patrice Bruneton, a consulting geologist with IAEA, and Sprott US Holdings’ president and CEO, Rick Rule.

Uranium overview 2016: rock bottom prices

Prior to the Fukushima disaster in 2011, uranium prices were a steady $70 per pound and, obviously, has been unable to recover since then.
As mentioned, the uranium price has reached rock-bottom lows in 2016, dropping from $36 per pound at the end of 2015 to its current price of $18.75.  As such, the rock bottom prices has allegedly made the uranium sector the worst performing energy commodity of 2016, according to Bloomberg.
“We were expecting a price recovery in 2016, but were wrong,” Chang told INN.
In a separate interview, Mercenary Geologist Mickey Fulp said in October that despite its low price, he remains bullish on the sector.
“Uranium’s had a very bad year despite other commodities having a relatively good 2016,” Fulp said. He elaborated on his reasons for being a uranium bull, noting they’re built on a mid and long-term future–not just on its short-term prices.
Similarly, Bruneton expressed likeminded comments, however he said he was surprised to see optimism at the beginning of 2016 with the expectations that uranium prices would boom.
“I was not expecting such a fall in the price, on the other hand,” he said.

Uranium overview 2016: low supply

On that note, the drop in uranium prices has been felt as a result of low uranium supply. The World Nuclear Association (WNA) notes that the fluctuation in mineral prices “relates to demand and perceptions of scarcity.” As such, WNA notes that the price can’t realistically stay below production cost, or stay at higher levels in anticipation of new producers entering the market.
With that in mind, supply in 2016 has been met with the delay of new projects and some closures of mines. For instance, Cameco (TSX:CCO) announcement in April that it would be putting a stop to production at its Rabbit Lake Mine–which has been the longest running uranium mine in Saskatchewan–resulting in a loss of 500 jobs.
Similarly, Fulp said that as of right now there is not enough uranium being produced–either with primary supplies or secondary supplies–to keep up with current demand.
“There is a current oversupply largely driven by the fact that Fukushima took 50 plus reactors out of commission and Japan,” Fulp continued. “That has really destroyed the short term demand of uranium.”
Rule made similar comments, saying “we are beginning the process of a supply destruction as we speak.”
“The question is, when will the Japanese restarts take place? How much real, above-ground inventory is there?” he asked. “Who has them and when will that come on the market?”


Still–Chang pointed out the industry has been in a primary supply deficit for decades, and that mine production has been short of global demand. Particularly, he said of note is the amount of the inventory, specifically in Japan, is in fuel assemblies.
“These are not transferrable from one reactor to another and will require disassembly and downblending in order for it to be usable for a different reactor,” Chang added. “In a world with sub-$20 uranium, there is little to no incentive for anyone to buy these fuel assemblies when they can get the raw material for a cheap price.
Looking at inventory numbers, Chang wrote in Cantor Fitzgerald’s most recent sector update that while the 1.4 billion in inventory “appears to be a massive umber, we need context.” Historically, there is little data on what inventory levels have been in the past, but Chang guesstimates they have been higher than current levels. Similarly, FocusEconomics also states that large inventories and multi-year supply contracts have reduced demand for freshly mined uranium.

Uranium overview 2016: demand pressures

In November, Reuters reported that Chinese demand for uranium is expected to nearly double to 9,800 tonnes per year by 2020. However, near-term supply surplus will keep pressure on the prices, according to the head of the China National Nuclear Corporation (CNNC).
That being said, the reason for the high demand in uranium is a result of nuclear reactors coming online in the coming years: it’s expected that nearly 40 reactors will begin operating in 2019, which will increase demand by 20 percent on current annual consumption of 174 million pounds, according to Proactive Investors.
While it’s clear the uranium sector has seen some of its toughest times, there is hope for the industry going beyond 2016.
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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