Those of us living in uranium producing countries are subject to endless rhetoric about the potential for uranium exports to radically improve the economy. Here in Australia, the mantra is that we have the potential to be the 'Saudi Arabia of the South' because of our extensive uranium deposits. That nonsense is trotted out not just by industry spivs but also by politicians, trade union officials and even by academics.1
Saudi oil export revenue in 2014 was US$285 billion2, while Australia's uranium export revenue was US$0.48 billion.3 So Australia's uranium export revenue would need to grow almost 600-fold to match Saudi oil revenue!
In fact the entire global uranium trade is pittance in comparison to Saudi oil. The value of annual global uranium requirements in recent years has been around US$10 billion.4
The uranium market has been in the doldrums since the Fukushima disaster. But for industry boosters, the glass is always half full. Either prices are high, or prices are low which makes it a great time to buy. An ETF Trends analyst notes that the Global X Uranium ETF – a fund which 'offers exposure to uranium mining companies worldwide'5 – has lost more than 86% of its value since late 2010.6 ETF's take? "But finally, maybe, hopefully, uranium stocks could be poised to rebound."
Cameco's share price has dropped 70% since 2011.7 Buy, buy, buy! As one uranium booster put it: "The current market turmoil has created a once in a generation opportunity for savvy energy investors."8
And of course, the figures can be spun in different directions. Uranium was the best performing mined commodity of 2015 according to Macquarie Bank, and the average spot price in 2015 was up 18% on the previous year.8
That's all true, but it's not saying much. As FNArena put it: "As we move into 2016 we note that 2015 was a year in which the spot uranium price proved a rampant outperformer. The price has hardly moved much in the past few months, thus uranium has left other commodities such as oil, iron ore and copper in its dust."9
Moreover the modest bounce was underwhelming since the uranium price was coming off an all-time low in real terms10 – the spot price fell below US$30/lb U3O8 in mid-2014 and is now around $35 (and the long-term contract price is a sickly $44).11 And the small price increase was partly due to disruptions at two of the world's largest uranium mines, Rossing in Namibia and Olympic Dam in Australia.8
The current price is so low that uranium mines are struggling to break even. Greg Peel from FNArena states that prices are below the cost of production for "many mines."9
The price is far too low to encourage investment in new mines. Rob Chang, an analyst with Cantor Fitzgerald, states that the break-even costs for new uranium mines is around $70–$80.8
The current spot price is about half the pre-Fukushima price and about one-quarter of the peak of the 2005–07 bubble. The industry and its boosters hoped that the end of the US/Russia Megatons to Megawatts program, which involved converting highly enriched uranium (HEU) from weapons into fuel for power reactors, in December 2013 would lead to increased prices. But that didn't happen. The Ux Consulting Company noted: "In the aftermath of the Fukushima disaster, many reactor projects worldwide have been delayed, and in some cases, new reactors have been cancelled. The decline in demand stemming from the Fukushima accident more than negates the reduction in supply that resulted from the end of the U.S.-Russia HEU deal."12
The industry hoped that the restart of reactors in Japan would lead to increased prices. But only three reactors have restarted and the uranium price hasn't bounced.
The industry hoped that the growth of nuclear power would lead to increased prices. But nuclear power has been stagnant.
The industry hoped that the drawing down of inventories would lead to increased prices. But inventories are massive and growing. According to the Ux Consulting Company, global uranium inventories as of last September were upwards of 1.1 billion pounds U3O8 equivalent (423,100 tUeq).13 That's enough to satisfy current global demand for 6.3 years.14
The uranium market will remain driven by inventory for many years, UxC's Jonathan Hinze said last September.13 In other words, inventories will keep prices down for many years.
Japan is "swimming – some would say drowning – in uranium" according to Jim Ostroff, senior editor of Platts Nuclear Publications.15 According to nuclear booster James Conca, Japan's uranium inventory will suffice to fuel the country's power reactors "for the next decade".15 Perhaps more, given the slow pace of the reactor restart process.
China's uranium inventory is estimated at 280 million pounds U3O8e (107,700 tUeq) as well as a significant quantity of enriched uranium.13 According to Macquarie Bank, China has a "staggering" stockpile and in 2016 will have the equivalent of nine years of projected 2020 consumption in inventory.16
Future prospects
The industry is getting increasingly desperate, looking for a bounce from political conflicts upsetting existing production and supply networks (e.g. the Russia / Ukraine conflict) or from further mine failures and closures. According to a Mineweb.com article: "What could bring a major price surge forward though remains major supply interruptions – either for geopolitical reasons, or for debilitating technical problems at one or more of the key producers."10
Amongst all the puffery there are some honest assessments of the uranium industry's miserable state. Surprisingly, Nuclear Engineering International (NEI) is one of the better sources of analysis.
Writing in NEI last October, Thomas Meade and Julian Steyn state:
"The sizeable gap between projected production and forecast reference demand through the early 2020s indicates that there may not be much upward pressure on market prices until the next decade. ... Unfortunately for uranium suppliers, excess supply is expected to persist. In an effort to maintain near-term viability suppliers have postponed new mines under development, cut back production activity or completely halted production ... The uranium market continues to struggle with oversupply, which is forecast to continue beyond the current decade. There are several causes, but the decline in demand after Fukushima remains the primary one."17
Writing in NEI in May 2014, former World Nuclear Association executive Steve Kidd stated that "the case made by the uranium bulls is in reality full of holes" and he predicted "a long period of relatively low prices, in which uranium producers will find it hard to make a living".18 Kidd's predictions are looking rock solid.
References:
1. ACF, 2013, 'Yellowcake Fever: exposing the uranium industry's economic myths', www.acfonline.org.au/sites/default/files/resources/ACF_Yellowcake_Fever.pdf
2. OPEC Annual Statistical Bulletin, 2015, www.opec.org/opec_web/static_files_project/media/downloads/publications/...
3. Estimate based on World Nuclear Association data, www.world-nuclear.org/info/Country-Profiles/Countries-A-F/Australia/
4. Annual uranium consumption is about 179 million pounds globally.
Thomas Meade and Julian Steyn, 2 Oct 2015, 'Treading water in the uranium market', www.neimagazine.com/features/featuretreading-water-in-the-uranium-market...
Most uranium is sold on long term contracts, with typical prices in recent years being around US$50– 55 / pound U3O8.
www.cameco.com/invest/markets/uranium-price
5. www.etftrends.com/etf-resume.php?quote=ura
6. Tom Lydon, 21 Sept 2015, 'Maybe Some Hope for the Uranium ETF', www.etftrends.com/2015/09/maybe-some-hope-for-the-uranium-etf/
7. Sarfaraz A. Khan, 30 Sept 2015, 'Whatever Happened To Uranium's Recovery?', http://seekingalpha.com/article/3543176-whatever-happened-to-uraniums-re...
8. Andrew Topf, 12 Jan 2016, 'Nuclear Renaissance Has Analysts Bullish On Uranium', http://oilprice.com/Alternative-Energy/Nuclear-Power/Nuclear-Renaissance...
9. Greg Peel, 27 Jan 2016, 'Uranium Week: The Outperformer', www.fnarena.com/index2.cfm?type=dsp_newsitem&n=04E94862-A0A3-8285-8DB1A4...
10. Lawrence Williams, 22 April 2015, 'Uranium outlook positive but perhaps not outstanding unless … ', www.mineweb.com/news/energy/uranium-outlook-positive-but-perhaps-not-out...
11. www.cameco.com/invest/markets/uranium-price
12. UxC, 'Uranium Suppliers Annual – 2015', www.uxc.com/products/rpt_usa.aspx
13. WNN, 15 Sept 2015, 'Uranium inventories driving markets', www.world-nuclear-news.org/UF-Uranium-inventories-driving-markets-150915...
14. Based on 66,883 tU required in 2015.
www.world-nuclear.org/info/Facts-and-Figures/World-Nuclear-Power-Reactor...
15. James Conca, 4 Jan 2016, 'As The World Warms To Nuclear Power, The Outlook For Uranium Is Up', www.forbes.com/sites/jamesconca/2016/01/04/the-2016-uranium-market-refle...
16. Stephen Cauchi, 31 Dec 2015, 'Australian uranium in demand as China goes full steam for nuclear', www.theage.com.au/business/energy/australian-uranium-in-demand-as-china-...
17. Thomas Meade and Julian Steyn, 2 Oct 2015, 'Treading water in the uranium market', www.neimagazine.com/features/featuretreading-water-in-the-uranium-market...
18. Steve Kidd, 6 May 2014, 'The future of uranium – higher prices to come?', www.neimagazine.com/opinion/opinionthe-future-of-uranium-higher-prices-t...