Last updated: November 14, 2014 5:15 pm Uranium becomes commodity to watch
By Henry Sanderson
From oil to gold, it has not been a vintage year for commodities. Uranium, however, is emerging as one of the few bright spots.
More than three years after Japan’s Fukushima nuclear disaster, spot uranium has just enjoyed its largest weekly increase since 1996 and is trading at its highest level in almost 18 months.
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The Global X Uranium exchange traded fund, which tracks miners of the nuclear fuel, is up 19 per cent in November.
US utilities are sensing an opportune time to buy. Demand is expected to increase with China’s plans to quadruple its nuclear capacity by 2020, and Japan has approved the restart of its first reactors since the disaster.
Last week Kyushu Electric Power Company received the go-ahead to bring its two Sendai nuclear reactors back on line.
At the same time the threat of increased sanctions on Russia is unnerving the industry, which relies on the country for uranium enrichment. Last year 20 per cent of the US’s enriched supply came from Russia, according to Macquarie.
“By 2020 there is going to be unavoidable shortfall,” said Robert Chang, an analyst at Cantor Fitzgerald. “All the utilities know this. They are being rewarded for buying ahead of time as the spot prices were falling and their near-term demands were covered.”
Much of the fresh supply is already locked up in long-term contracts and not available on the spot market. The Husab uranium mine in Namibia is expected to send most of its output to China after it reaches peak production in 2017.
There is no formal exchange for uranium but there are indicators that seek to track market prices.
The market was hit hard by the meltdown of nuclear reactors at the Fukushima Daiichi nuclear power plant in 2011 following a tsunami, and the subsequent closure of Japan’s 54 reactors. From more than $70 a pound, uranium sank to as low as $34.50.
Last year about 20 per cent of US uranium was purchased under spot contracts at a weighted-average price of $43.83, according to the Energy Information Administration.
The weekly spot price for uranium ending November 10 was $41.75 per pound, according to Ux Consulting, up $5.
That is still at low levels historically and below the $65-$70 that analysts estimate will be high enough to spur additional mine production.
A large US utility had bought about 10m pounds in the past few weeks, Mr Chang said. That is about a fifth of the total purchased by US utilities in 2013. And other utilities were looking to buy, he added.
US utilities have smaller inventories than those in Europe or Asia. As for China, it has already accumulated eight years’ worth at last year’s consumption rate, according to Stefan Ljubisavljevic, an analyst at Macquarie.
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