With prices surging 30 percent this-year-to-date, a glow on the uranium market has been put by a resurgence in interest for nuclear energy and a sharp reduction in supply.
With prices getting a boost after top supplier Khazakhstan shocked the market on Jan. 10 when state-owned Kazatomprom announced a 10 percent production cut, the benchmark uranium futures on the New York Mercantile Exchange are trading around $27 per pound. This company produces all of Kazakhstan's uranium output.
Warren Gilman, CEO of CEF Holdings, a Hong Kong-based investment company said that any output cuts will have an outsized impact on the market as Kazakhstan supplies 40 percent of the world's uranium supply. Nuclear power generation uses up nearly all of the world's mined uranium.
The company will cut 10 percent of its output this year, an amount equivalent to 3 percent of global production, Kazatomprom chairman Askar Zhumagaliyev said in the company’s announcement last month. There was a sustained crash in prices that saw prices slump to a 12-year low last December from an oversupply and the decision stems from that situation.
In 2011, a meltdown and radiation leaks was caused by a powerful earthquake and tsunami at Japan’s Fukushima Daiichi Nuclear Power Plant and Kazatomprom's troubles came after years of expanding supplies since that time. Uranium demand was slashed as the accident prompted re-examination of nuclear safety and policies in many other countries and a shutdown of the Fukushima plant.
Interest, notably from the emerging markets of China, India and South East Asia, has been picking up in recent times.
"You have a very good long-term indicator of what demand is going to be; what is the volatility in the recipe is the supply," said CEF's Gilman.
"You've got a very focused supply of uranium in a country which has significant sovereign risks surrounding it," added Leigh Curyer, the CEO of NexGen Energy, a uranium exploration company.
"(Nuclear power) is undergoing quite a resurgence. A lot of countries are recognizing that nuclear power is the baseload supply of electricity that is emissions-free," he added.
For China, where air pollution from coal-powered plants have become a social and political issue, this is particularly applicable.
Mark Jolley, equity strategist at CCB International Securities said that the demand outlook for uranium is much stronger than that for other fossil fuels as there are some 61 nuclear plants being built globally with another 150 being planned.
With the run-up lagging gains in the energy complex and noting that the jump was from a low base as prices tanked to a 12-year low of $18 per pound low in November, Macquarie Bank was more circumspect on the current rally.
"Uranium pricing is currently trading 50 percent of where it was 40 years ago in nominal terms – never mind adjusting for inflation. There is no other commodity for which this is true. Essentially, this has put uranium in the situation where many peer commodities were at this time last year, trading too far into the cost curve for pricing to be sustainable," analysts wrote in a report on Jan. 20.
Riding on confidence in the U.S., the world's largest uranium consumer, the Australian bank was upbeat.
"With the closure of a large number of nuclear power plants announced earlier in 2016 on economic grounds, legislative actions in New York and Illinois keeping some of these open will provide both more optimism and spot market demand into 2017," Macquarie analysts wrote.
(Source:www.cnbc.com)
With prices getting a boost after top supplier Khazakhstan shocked the market on Jan. 10 when state-owned Kazatomprom announced a 10 percent production cut, the benchmark uranium futures on the New York Mercantile Exchange are trading around $27 per pound. This company produces all of Kazakhstan's uranium output.
Warren Gilman, CEO of CEF Holdings, a Hong Kong-based investment company said that any output cuts will have an outsized impact on the market as Kazakhstan supplies 40 percent of the world's uranium supply. Nuclear power generation uses up nearly all of the world's mined uranium.
The company will cut 10 percent of its output this year, an amount equivalent to 3 percent of global production, Kazatomprom chairman Askar Zhumagaliyev said in the company’s announcement last month. There was a sustained crash in prices that saw prices slump to a 12-year low last December from an oversupply and the decision stems from that situation.
In 2011, a meltdown and radiation leaks was caused by a powerful earthquake and tsunami at Japan’s Fukushima Daiichi Nuclear Power Plant and Kazatomprom's troubles came after years of expanding supplies since that time. Uranium demand was slashed as the accident prompted re-examination of nuclear safety and policies in many other countries and a shutdown of the Fukushima plant.
Interest, notably from the emerging markets of China, India and South East Asia, has been picking up in recent times.
"You have a very good long-term indicator of what demand is going to be; what is the volatility in the recipe is the supply," said CEF's Gilman.
"You've got a very focused supply of uranium in a country which has significant sovereign risks surrounding it," added Leigh Curyer, the CEO of NexGen Energy, a uranium exploration company.
"(Nuclear power) is undergoing quite a resurgence. A lot of countries are recognizing that nuclear power is the baseload supply of electricity that is emissions-free," he added.
For China, where air pollution from coal-powered plants have become a social and political issue, this is particularly applicable.
Mark Jolley, equity strategist at CCB International Securities said that the demand outlook for uranium is much stronger than that for other fossil fuels as there are some 61 nuclear plants being built globally with another 150 being planned.
With the run-up lagging gains in the energy complex and noting that the jump was from a low base as prices tanked to a 12-year low of $18 per pound low in November, Macquarie Bank was more circumspect on the current rally.
"Uranium pricing is currently trading 50 percent of where it was 40 years ago in nominal terms – never mind adjusting for inflation. There is no other commodity for which this is true. Essentially, this has put uranium in the situation where many peer commodities were at this time last year, trading too far into the cost curve for pricing to be sustainable," analysts wrote in a report on Jan. 20.
Riding on confidence in the U.S., the world's largest uranium consumer, the Australian bank was upbeat.
"With the closure of a large number of nuclear power plants announced earlier in 2016 on economic grounds, legislative actions in New York and Illinois keeping some of these open will provide both more optimism and spot market demand into 2017," Macquarie analysts wrote.
(Source:www.cnbc.com)
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