Without a doubt, 2016 was one of the toughest years in recent memory for the uranium industry, and it’s hard to imagine it getting any worse than it already has: in particular, prices dropped to 12-year lows to $18.75 per pound in October, and reactors have been slow coming back online since the 2011 Fukushima disaster.
Of course, a number of companies in the sector have also felt the ramifications of the low price. Ted O’Connor, CEO of Plateau Uranium (TSXV:PLU), told the Investing News Network (INN) that “the resource sector had been in the worst downturn seen in decades at the end of 2016, and we were seeing classic bottom of market events.”
What’s more, O’Connor added that for the uranium sector, “you can sense the bottom is here,” which could mean good news for the uranium industry–at least in the long run.
To get some insight and thoughts on the uranium outlook 2017, Chang elaborated with INN, along with Patrice Bruneton, a consulting geologist with IAEA.
2016 uranium themes: price drop, mine closures and inventory
Despite demand from China potentially doubling to 9,800 metric tons annually by 2020, the uranium price has no doubt struggled significantly this year. As mentioned, its prices have dropped to its lowest levels in over 12 years–sitting at $18.75, as of December 12, 2016–which has been surprising.
“We were expecting a price recovery in 2016, but were wrong,” Chang said. “The impact of the carry trade to satisfy emerging uncovered requirements was much stronger than anticipated.”
Bruneton agreed with Chang, noting he was not expecting such a fall in the uranium price.
In that regard, there were, of course, a number of factors contributing to the drastic price drop. While it’s not unique to 2016 only, FocusEconomics noted in their December 2016 Consensus Forecast Commodities Outlook that the market hasn’t been able to recover from the Fukushima disaster in 2011.
In terms of supply, the largest miner of uranium in the world, Cameco (TSX:CCO) announcement in April that it would be halting production at its Rabbit Lake mine–the longest-running uranium mine in Saskatchewan–has no doubt impacted the sector. The company had previously set a target for production in 2016 at 30 million pounds of uranium, which has since changed to 25.8 million pounds.
Uranium outlook 2017: flat prices and emerging demand
As we move into 2017 and beyond, the outlook for the uranium market is hopeful.
Chang said Cantor Fitzgerald believes prices will be flat to slightly higher in 2017, as the carry trade continues to push emerging uncovered demand forward by a year or two. But, he added, as interest rates rise and increasing percentage of global uranium requirements become uncovered, there will be a point where the carry trade won’t be able to satisfy the demand.
“Utilities will be forced to enter into the spot market more aggressively to satisfy their needs,” Chang said. “This will kick off the violent price increase we have been expecting.”
On the other hand, FocusEconomics expects the uranium price to pick up in 2017, averaging $33 per pound in the fourth quarter of 2017.
While it’s not clear when that price kick will happen, what we can anticipate is future supply keeping up with emerging demand–although it won’t happen just yet. In November, it was reported that Berkeley Energia (ASX:BKY) has started working on a $100 million uranium mine, although it isn’t expected to open until 2018. It has a target production of 4.5 million pounds of uranium per year, and will reportedly be one of the lowest-cost uranium producers in the world.
What’s more, data from the World Nuclear Association (WNA) points out that there are 440 commercial nuclear power reactors operable in 31 countries, with 60 more under construction. Of course, it’ll take time before the reactors have any kind of impact on the uranium industry, but it is hopeful nonetheless.
While positive, Bruneton expects “a very slow to slow” recovery in 2017 and 2018 as a result of nuclear reactors restarting in Japan, and new ones coming online–mentioned above.
“But, China has large stocks and several mining projects that are ready to bring large quantities of uranium into the market,” he noted.
Cameco also projects that uranium demand will increase by 500 million pounds in the next 10 years for nuclear reactors–supply that hasn’t been contracted out yet–and Cantor Fitzgerald said up to 80 percent of the uranium market may be uncovered in terms of supply by 2025.
To that end, while there isn’t much to be expected in 2017, the uranium industry is poised for a liftoff in the next couple of years–and that is certainly something to look forward to.
Investor takeaway: eyes on interest rates
In terms of what investors in the uranium sector should pay attention to, Chang said paying attention to interest rates is key.
“Investors will need to keep their eyes on interest rates, as rising rates will make the carry trade less attractive and spot market uranium activity,” he said. “Increased volumes means more utilities are feeling the need to buy in the market.”
Indeed, the uranium market has been flat over the last couple of years, but investors will be watching how the sector unfolds in 2017; it could be the start of a long overdue uranium bull run.
Companies to watch
Turning the focus to what companies to watch, Chang noted a few that investors should keep their eyes on:
- Cameco, he said, as it’s the biggest go to name in the space
- Ur-Energy (TSX:URE), who is the lowest cost publicly traded producer in the US
- Energy Fuels (TSX:EFR), which has the largest production capacity in the US
- NexGen Energy (TSX:NXE), because Chang said it has one of the best uranium deposits in the world
- Uranium Participation (TSX:U), as it is a pure play on uranium as a commodity, Chang said.
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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.
Plateau Uranium and Energy Fuels are clients of the Investing News Network. This article is not paid for content.