Gearing Up for a New Uranium Boom
Few markets have suffered more over the last decade than our heavy radioactive friend; the Fukushima incident of 2011, as would be expected, sent investors running for the bunkers as Japan took an astounding 54 reactors offline and sold off much of their remaining uranium stockpile. Resultantly, prices have been in decline ever since, now sitting not-so-pretty at around $20/lb for over a year. As with all commodity markets, however, the lowest low only serves to signal the oncoming rush, and so any company that manages to survive can have the rather schizophrenic time of celebrating the poorest financials on record. What a world we live in.
Before any of you start accusing me of trying to predict the bottom, according to the World Nuclear Association, China and India are currently building a combined 26 new reactors and plan to build just under 250 more in the near future. Additionally, fervent support from the Trump Administration to resuscitate the nuclear industry in the USA is adding more fuel to the fire. These key growth factors have motivated a number of industry experts to claim that the price of uranium could as much as quadruple over the next five years as current stockpiles would be insufficient to meet this level of demand.
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Others have remained a little more conservative, stating that prices won’t truly begin to recover until at least 2020, leaving a little more time to thin the already attenuated supply chain. Regardless of when, the fact remains that numerous population-heavy nations have committed to massively ramping up nuclear capacity, and although uranium buyers most frequently found themselves purchasing from stockpiles in the past, the market of the future is likely to be considerably more producer-focused.
Demand for uranium of course recovered after Fukushima and continued to increase as supply disruptions appeared amid the price slump, meaning that inventories were consumed at a much faster rate than they otherwise would be. The likelihood of a much greater future need has shifted the world’s attention to supply, something that the uranium market has not had to worry about for decades. Sustained low prices will always concentrate supply since a substantial number of operations will be forced to close (not many companies can make money extracting uranium for $20/lb), and this creates a very real risk, especially when countries such as Russia and China are pushing nuclear power harder than ever.
More than 90% of the roughly 55 million pounds of uranium used in US nuclear reactors each year is imported, primarily from Canada and Kazakhstan, according to the US Department of Energy, but a new growth period would create a major opportunity for the country to get back into the uranium game as a major exporter. Historically, Wyoming has been the largest American producer, and miraculously, it still houses five active uranium processing plants today (the only other being in Nebraska).
Each year, the OECD’s International Energy Agency (IEA) sets out the present energy situation as well as a variety of scenarios, most of which relate to reducing emissions. In the 2016 edition of its World Energy Outlook report, the IEA’s ‘New Policies Scenario’ sees installed nuclear capacity growth of over 50% from 2014 (about 390 GWe) to 2040 (about 590 GWe). The scenario envisages a total generating capacity of 11,200 GWe by 2040, with the increase concentrated heavily in Asia, and in particular China (33% of the total). Considering that, in this scenario, nuclear’s contribution to global power generation would remain static at about 11% of the total, there is still acres of room for growth to trounce expectations. Either way, uranium is currently more of a buyer’s market than it has ever been, and investors are encouraged to sift through the doom and gloom and await payday.