| | | | | Tuesday, October 20, 2015 | |
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Radioactive, But Not Toxic
Uranium may be radioactive, but that doesn't mean it's always toxic.
It's true that during the last several years, uranium has been very toxic to investment portfolios. But if recent trends continue, uranium could begin to help portfolios rather than harm them.
Uranium's possible transformation from a portfolio emetic to an elixir relies on the likelihood that uranium demand will outstrip supply within the next few years.
Already, demand exceeds the annual supply of newly mined uranium. But "secondary supplies" have more than amply filled the gap.
As Cameco, one of the world's largest uranium miners, explains:
Secondary supply - uranium in various forms that is already out of the ground and sitting in stockpiles around the world - has been filling the gap between consumption and production for more than 20 years. For example, in 2014, world consumption was 155 million pounds, while there was only about 147 million pounds of fresh uranium production. The largest contributor to secondary supply has been the Russian Highly Enriched Uranium (HEU) Agreement, which provided approximately 24 million pounds of uranium to the market every year. However, secondary supplies in general are decreasing and the HEU agreement came to an end in 2013...
Meanwhile, newly mined uranium supplies are also likely to trend lower over the coming decade. That production decline is the direct result of the persistently low uranium price.
As the uranium price has plummeted from the 2007 high around $150 a pound to the $35 level, the incentive to invest in uranium mining also plummeted. Result: falling mine supply.
But the prospect of falling supply, coupled with the prospect of rising demand, has not been enough to boost the uranium price.
That's because the current conditions in the uranium market are not nearly as attractive as the prospective conditions. The uranium market is still in oversupply, not in deficit.
The culprit, in a word, is "Fukushima." Japan's nuclear disaster in 2011 knocked the knees out from under the worldwide nuclear power industry.
As a result of Fukushima, Japan shut down all 54 of its reactors, Germany announced a complete phase-out of nuclear power and China slowed its ambitious nuke-construction program.
But the "Fukushima effect" is wearing off. Japan is restarting its nukes, while China, India and others have taken their nuclear power programs off of "pause."
Cameco provides the details:
We are seeing a level of new reactor construction unparalleled in decades: More than 60 reactors are under construction around the world, right now, with a total of 518 operating reactors expected by 2024, up from today's 436... When we put the expectations for demand together with the expectations for supply, we see a growing gap between the two as more new reactors increase the demand for uranium, while, at the same time, secondary supplies diminish and primary producers experience economic challenges that will make it difficult to bring on new production.
Hmmm... Demand, up. Supply, down. That usually means higher prices.
Cheers,
Eric J. Fry
For The Non-Dollar Report
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