Photographer: Martin Divisek/Bloomberg

World’s Worst Commodity Radioactive for Investor Portfolios

Updated on
  • Uranium used in nuclear fuel posted the biggest losses of 2016
  • Demand slump after Fukushima may get revival in China reactors

No major commodity had a worse 2016 than uranium. In fact, the element used to make nuclear fuel has had a pretty dismal decade.

Prices tumbled 41 percent last year, touching a 12-year low below $18 a pound in November, according to Ux Consulting Co., which compiles market data. The slump was the seventh in nine years. The rise of nuclear power has slowed as utilities shifted to cheaper natural gas for new generators. And after the 2011 Fukushima disaster, safety concerns led big uranium buyers including Japan and Germany to shut down or decommission reactors.

“It’s the world’s best asset in the world’s worst market,” said Leigh Curyer, chief executive officer of NexGen Energy Ltd., a Vancouver-based uranium producer. “I don’t think there’s a mine profitable at current spot prices. This short-term spot price isn’t reflective of the cost of producing a pound globally.”

The outlook isn’t entirely bleak. Losses are forcing uranium mines to cut production or close, which may eventually create a supply crunch, while accelerated building of nuclear plants in China and India could help revive demand. But it may take awhile for those developments to take hold, according to a report last month from Morgan Stanley, which said it can’t identify any medium- or long-term driver for prices.

Uranium extended its fade last year even as most other raw materials recovered. The Bloomberg Commodity Index of 22 items posted its first annual gain since 2010, advancing 11 percent. Natural gas futures rebounded from a 17-year low in March to gain 59 percent last year, while zinc, oil and sugar rose more than 20 percent.

The 2011 earthquake and tsunami that crippled Tokyo Electric Power Co.’s Fukushima Daiichi power station brought the uranium market to its knees. Japan, which was Asia’s biggest producer of nuclear power, shut all its nuclear plants for safety checks and local resistance slowed restarts to a crawl. The disaster also forced a rethink in other countries. Germany decommissioned reactors and is shifting to other fuels, including cheaper renewable sources that are a growing share of the European electricity market.

Japan Freefall

Japan has enough stockpiles to power its reactors for at least six years, Ux Consulting said in early November, compounding a surplus that has continued to drive uranium prices lower. Only two of 42 operable reactors in Japan are currently running. While forecasts for further restarts vary, BMI Research said in a note Thursday that public opposition to nuclear may leave the country with only 10 reactors online by 2026.

While prices remain near multiyear lows, they had rallied by Dec. 31 to $20.25 a pound as utilities bought cheap supply, according to TradeTech, a Denver-based consultant. 

Comments by Donald Trump also influenced the market. In a tweet, the president-elect said the U.S. needs to “greatly strengthen and expand its nuclear capability,” a reference to America’s nuclear arsenal that prompted Russian President Vladimir Putin to say his country would respond to any buildup. Prices rose even though Mark Hibbs, a senior fellow at Carnegie Endowment for International Peace’s Nuclear Policy Program, says both countries have more than enough enriched uranium to expand their cache of missiles.

Still, the gains helped buoy some uranium producers, including Canada’s Cameco Corp. Shares of the Saskatoon, Saskatchewan-based company rallied more than 40 percent since the end of October, though the company still is worth just about half what it was three years ago.

Nuclear Expansion

Longer term, there is a glimmer of hope for uranium. More than 60 reactors were under construction globally as of April, according to the World Nuclear Association.

China is the most ambitious, with plans to boost its nuclear power capacity more than 70 percent by 2020. In India, the government plans to expand capacity 29 percent by 2019. Seven reactors are under construction in Russia, according to the International Atomic Energy Agency. In the U.S., Trump’s advisers are seeking to keep aging plants online longer, according to an internal document circulated by the Energy Department last month.

In Japan, nine reactors should be in operation by the end of this year, though each still faces some local and legal opposition, according to Daiwa Securities Co. David Wang, an analyst at Morningstar in Chicago, is even more bullish. He expects as many as half of Japan’s nuclear reactors will be online by 2018.

Forecasts vary as to when prices break out of their doldrums. In a December report, Morgan Stanley said spot uranium will remain stuck near $19 this year, rise to $21 in 2018 and average $24 by 2019. The bank had the lowest forecast for next year in a Bloomberg survey of five analysts, with the average at about $23. By 2019, uranium may reach $55, a separate tally of four analysts forecasts showed.

Willem Middelkoop, the founder of Aerdenhout, Netherlands-based Commodity Discovery Fund that returned 70 percent last year, said he expects the spot price to return to at least $30 this year -- and rise substantially in the longer term because of the nuclear-power projects being planned globally.

“Uranium will be in really high demand because so many nuclear reactors are being planned in Asia and all around the world,” Middelkoop said. “We expect real stress in the uranium market after 2020. We could see uranium prices of $100 and higher.”

— With assistance by Stephen Stapczynski, and Ben Sharples

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