Uranium prices are expected to outperform other commodities next year and beyond, as a global climate change deal and growing demand from Asia bolster the prospects of the nuclear industry.
The metal that powers nuclear reactors has been gradually recovering from a sharp decline in the wake of Japan’s Fukushima Dai-ichi nuclear power plant disaster in 2011, and has gained this year as several other commodities slumped due to oversupply and concerns about Chinese economic growth and US monetary tightening.
It is expected to climb further, analysts said, after governments forged a landmark agreement to reduce greenhouse gas emissions at a global climate summit in Paris last month — a move that supports nuclear power generation and in turn uranium.
Photo: AFP
Nuclear power stations currently provide about 11 percent of the world’s electricity, but the share is likely to increase as China and India expand their capabilities.
China — seeking to reduce its dependence on polluting coal — plans to build six to eight nuclear power plants a year for the next five years, and India aims to generate 25 percent of its electricity from nuclear by 2050, up from 4 percent in 2013.
Meanwhile, Japan is restarting four reactors, which may accelerate its return to atomic energy.
“The China boom is only now happening and while ‘nuclear’ might still be a toxic word, nuclear power generation is recovering towards pre-Fukushima levels,” Macquarie analyst Stefan Ljubisavljevic said.
“It might not be popular, but it does provide the clean and consistent base-load power generation that many nations are seeking,” he said.
Prospects of higher demand and strategic stockpiling from US utilities sent spot prices to an average of US$39 a pound (0.45kg) this yea, up 18 percent from US$33 last year, making it the best-performing metal of the year and one of the few commodities to post a yearly increase.
Crude oil, the most traded commodity by far, lost 35 percent of its value this year, while benchmark base metal copper fell 26 percent and gold dropped 9.4 percent. Cocoa bucked the trend, with a 12 percent increase.
Both Bank of America-Merrill Lynch (BofA-ML) and BMO Capital forecast uranium prices would rise to test US$60 a pound by 2018.
Kazakhstan, the world’s biggest uranium producer, has just signed cooperation agreements with Chinese companies to build a nuclear fuel plant in the central Asian country, while Canada’s Cameco, the world’s largest listed uranium mining company, signed a five-year deal in April to supply fuel to Indian nuclear reactors.
BofA-ML analyst Oscar Cabrera said he expected uranium prices to continue to advance after 2018, thanks to increasing demand from emerging markets China and India.
Uranium prices plunged after a major earthquake and tsunami in Japan disabled the power supply of three Fukushima reactors, causing a meltdown and the release of radioactive material in March 2011. From about US$60 before the disaster, they hit a nine-year low of US$28 last year.
Although the steep price decline resulted in mining cuts and delays and cancelations of projects, stockpiles remain large.
Analysts’ estimates of the global market surplus range from 20 million to 27 million pounds this year, which they say is likely to fall to between 7.5 million and 10 million pounds by 2020.
About 150 million pounds of uranium are estimated to have been consumed this year, according to data from the World Nuclear Association.
Kazakhstan is the world’s biggest uranium producer, followed by Canada and Australia, while the US is the biggest consumer, followed by France and China.
BofA-ML forecasts consumption would rise to just below 200 million pounds by 2020.
“Uranium has proven to be a pretty good place to hide for resource and energy-focused investors,” BMO Capital Markets analyst Edward Sterck said, adding: “I think it will continue.”
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