Commodities prices are pretty much like the War on Terror—driven by fear.
Since the 2011 Fukushima nuclear disaster in Japan, uranium prices have dropped sharply, and stayed there. Now, depending who you ask, uranium prices are poised for a nice rebound or they are doomed to a slow death.
In order to predict the future of uranium prices with any accuracy, you have to be able to predict fear, but this is what the commodities market is all about.
Right now uranium prices are at about $40 a pound—half the price it needs to be in order to get new uranium mines off the ground. So explorers have very little chance of getting together any new equity to move forward.
The spot price for uranium in June fell below $40 a pound (to $39.87) for the first time since 2009. In July, uranium spot prices hit a new eight-week low, reaching down to $34.50 before gaining $1.25 last week.
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Some hold that it is inevitable that uranium prices will rebound to pre-Fukushima levels if only because nuclear energy is still our cheapest and cleanest—if not safest—option, especially if we consider climate change.
According to an Australian market report, there is a “strong conviction” that uranium prices “could be about to turn”.
In an interview with The Energy Report, David Talbot, senior mining analyst at Dundee Capital Markets, says a lot of investors are still sitting on the sidelines over uranium, but there are catalysts that could trigger a uranium boom.
“Despite recent spot market weakness, uranium producer equities have pushed ahead 10%, developers 12% and explorers 17%, on average,” Talbot was quoted as saying. “A uranium supply crisis is still brewing and the fundamentals do remain strong. Demand is stable and reasonably predictable. The weak spot prices still threatens future mine supply with more closures, cancellations and deferrals of mining projects.”
But the key catalyst for this year that may overcome the fear, he says, will be the end of the Russia-US HEU Megatons to Megawatts program, which will take 24 million pounds of secondary supply offline with nothing to replace it.
Other optimists are looking at global nuclear plans in the works as a sign that when the next uranium boom does hit, it will be big. Right now there are 66 nuclear plants being built worldwide, with another 266 planned or proposed for the next decade and a half.
The optimists will also point to Japan’s recent decision to develop its reactor restart program, which could launch within a year—and this could go far to restore investor confidence.
They make a good case, these optimists, and there is much to say for nuclear energy despite Fukushima. Not to mention ambitions further afield to commercially develop small mobile reactors. But uranium miners are also keen to keep the optimism flowing, and perhaps exaggerated.
Some analysts will caution not to put too much focus on the spots prices for uranium, but nevertheless it is an indicator of sentiment—and right now, the sentiment is negative. In the longer-term, we are likely to see a rebound because the catalysts are there, but this is the long term, not the immediate, and probably not even the medium-term. Any rebound will likely be gradual, not a sudden huge boom.
By. Charles Kennedy