Uranium price rally comes to screeching halt

Uranium was the glaring exception amid a broad-based rally in metals and minerals in 2016.

The price of U3O8 fell 41% in 2016 with the industry tracker UxC's broker average price hitting 12-year lows below $18 per pound in November.  That price compares to an all-time high of nearly $140 a pound reached in June 2007.

Then, against expectations, the price started to turn. When top supplier Kazakhstan announced in the second week of January that it's cutting output by 2,000 tonnes, equal to 3% of global production, the rally seemed more than justified.

Enough uranium is above ground for the next eight years

By February 10 the price had climbed to $26.68 a pound, a 32% year to date gain, but all that changed this week with the price of U3O8 falling 6.3% to end Friday at $25.00.

Enough uranium is above ground for the next eight years

Haywood Securities, a Vancouver-based investment dealer, points out that the fall should have been expected:

The rise in the price of uranium has come as a surprise to investors considering the underlying fundamentals do not seem to have changed; in fact, TEPCO’s announcement that they had declared Force Majeure on a key uranium delivery contract from Cameco Corp. (CCO-T) two weeks ago suggested a fall in the price of uranium was likely.

The announcement indicates that the start-up of nuclear reactors in Japan continued to be protracted. Given the performance of uranium over the last 3 months, it is unlikely investors are overly concerned at this stage; however, with the status of nuclear energy in Japan remaining uncertain, sentiment towards uranium remains clouded.

Uranium's weakness persists despite strong fundamentals with only reactors already being built – 66 in total, mostly in China – expected to increase the global need for uranium by a fifth from today's levels.

But in the short term there seems no relief in sight for the battered industry. Following the Fukushima reactor meltdown in 2011, market expectations were that Japan would move quickly with restarting their reactors, but 38 remain shut five years on.

Uranium that would have been delivered to Japan is being stockpiled. UxC estimates global inventories as high as 1.4 billion pounds of which some 800m pounds are sitting utilities and most of the remainder with the Russian and US governments.

While not all stockpiles can easily be brought onto the market, roughly 173 million pounds are needed per year to feed the world's more than 400 operable reactors which means enough uranium is above ground for the next eight years.