Tuesday, November 25, 2014

Uranium prices continue huge rally as Japan Moves to Restart Reactors

Uranium’s 18 percent rally makes it the best-performing energy commodity this year as the atomic fuel extends gains in a bull market amid signs that Japan will restart idled nuclear plants and China’s demand may strengthen.

The fuel is poised for its first annual advance since 2010, beating returns from power-station coal and all five energy securities in the Bloomberg Commodity Index. (BCOM) Prices jumped as much as 57 percent from a low of $28 a pound in May, providing a boost to producers from Australia to Kazakhstan. They were at $40.50 yesterday, according to data from Ux Consulting Co., which provides research on the nuclear industry.

Uranium price

“There are a few key factors that are making traders believe that prices should be going up, this includes the good news of Japanese reactor restarts,” Jonathan Hinze, a senior vice president at Ux in Roswell, Georgia, said by e-mail. “Expectations that demand will grow even stronger due to China” have also helped to underpin gains, he said.

Japan, once Asia’s biggest atomic power producer, may resume its first reactors early next year after Kyushu Electric Power Co. received local approval for its Sendai power station. China, the world’s largest energy consumer, is seeking to increase its nuclear generation capacity threefold by 2020 and will build the most reactors globally during the next three years, according to the World Nuclear Association in London.

The Bloomberg Commodity Index slipped 6 percent this year, while benchmark Asian coal prices are down 26 percent and U.S natural gas rose 5 percent. Brent crude in London slumped 30 percent, West Texas Intermediate slid 25 percent and U.S. gasoline tumbled 27 percent.

Uranium have averaged $33.13 this year after rising to $44 on Nov. 17, the highest since December 2012.

Uranium reserves by country

Fukushima Meltdown

The nuclear fuel dropped as much as 62 percent after the meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant in March 2011 and subsequent closing of Japan’s atomic fleet. Uranium prices were at the highest in almost three years a month before the disaster, trading at $73 a pound.

“The door to the pre-Fukushima period is at long last starting to open,” said John Borshoff, the chief executive officer of producer Paladin Energy Ltd., which halted its Kayelekera mine in Malawi as prices fell. Uranium and nuclear energy is on a “more positive trajectory with a lot of upside to come,” he said on a conference call Nov. 13.

Kyushu Electric received permission for the restart of its Sendai reactors from the Kagoshima prefecture governor this month. Japan has been without nuclear power since September 2013 when the last of its operable commercial fleet of 48 was idled, leaving the country reliant on other fuels such as coal and liquefied natural gas for its electricity needs.
Price Correction

“There’s still supply in the market that has to get taken up,” Tim Gitzel, the chief executive officer of Cameco Corp., Canada’s largest uranium producer, said during an investor presentation on Nov. 24. “We’re really still waiting for a return to long-term contracting.”

The price rally has run too far, too fast and there will be a short-term correction, Macquarie Bank Ltd. analysts including Colin Hamilton, the London-based head of commodities research, said in a Nov. 20 note. Re-balancing of the market will be a longer-term process, the bank said.

There’s a uranium surplus of about 5 million pounds, which is forecast to expand to 20 million by 2018, according to estimates from RBC Capital Markets.

“Restarts are good for sentiment but ultimately the impact on supply and demand is not particularly material given the level of inventory,” Chris Drew, an analyst at RBC in Sydney, said by phone on Nov. 21. “Given that we’re heavily reliant on that Chinese reactor build to grow that demand over the medium term, the risks are construction may take longer than expected. That could extend the period we remain in oversupply.”
Asia Demand

Global nuclear power capacity is increasing steadily, with more than 60 reactors under construction in 13 countries, the most in Asia, according to the World Nuclear Association. Almost half of those are being built in China, with 26 units being developed, the association said on its website.

“The last two years, utility fuel buyers have been sitting on the sidelines because they’ve been very worried that Japan’s 100 million-pound inventory will be released into the market,” said Alexander Molyneux, the chairman of Azarga Uranium Corp., a miner that expects to start output at its Dewey Burdock project in the U.S. by the end of 2016.

U.S. and European utilities may now look to build their stockpiles, Molyneux said in Singapore yesterday.

Uranium may average $39 a pound next year, according to the median estimate in a Bloomberg News survey of seven analysts. Forecasts ranged from $35 to $43.

“The spot uranium price has jumped significantly over the past few weeks,” Hinze from Ux said on Nov. 20. “It appears most likely that spot price will remain above $40 for the remainder of this year unless we have some significant new development.”

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