Uranium has been one of the worst performing commodities markets for years. Since 2011's pivotal Fukushima reactor leak, the price of uranium fell by more than half.
At best, uranium explorers and producers have gone sideways. At worst, some have gone under.
But we're at a pivotal point in this sector right now. Demand is about to jump, uranium supply outlook is getting tighter, and Japan's nuclear needs are coming back.
In fact, within the next two years, this commodities market is forecast to face a deficit scenario that will drive prices higher once again. . .
Commodities Market Focus: Uranium Demand Coming Back
In the wake of the Japanese tsunami that destroyed its Fukushima reactor, 54 of the country's reactors were shut down. That resulted in as much as 10% of world uranium demand disappearing.
But Japan has been gradually returning to nuclear power.
It's now four years later, and approval's been given to restart four reactors, with another nine awaiting the green light.
Since those events, there are now an additional 11 reactors under construction globally (totaling 69) and an additional 31 on order or in planning stages (totaling 183).
As you can see from those numbers, nuclear as a form of electricity generation has continued to grow, albeit at a slower pace than it was before. And it will keep growing.
Globally there are hundreds of new reactors either under construction or in planning stages. The United States is the largest consumer of uranium in the world, requiring more than 50 Mlb annually, yet producing only 4.7 Mlb domestically.
China consumes 19 Mlb/year, and that's expected to reach 73 Mlb/year by 2030. China, too, only produces about 4 Mlb/year.
All of this is developing against a backdrop of shrinking supply that will simply be unable to match demand any time soon…
Commodities Market Pricing: As Simple as Supply and Demand
Across the globe there's been significant damage to the supply side of the equation.
Falling uranium prices have caused numerous, especially higher cost producers, to scale back. Some mines have shut down entirely, while others have seen output reduced. Certain projects have been placed on care and maintenance, or worse, canceled entirely.
The 20-year Megatons to Megawatts program, whereby Russia sold low enriched uranium to the United States, ended in December 2013. That has removed 24 Mlb/year of secondary supply. Of course, current Western sanctions on Russia are also weighing on uranium supplies sourced in Russia.
Recent developments in Australia and Canada are likely to further limit future uranium output from those countries as well.
Australia, the third-largest uranium-producing nation, has recently seen the state of Queensland re-impose a uranium mining ban.
That now means no new projects can be developed for the foreseeable future in that state, although exploration can continue.
It's not difficult to imagine that few resource companies will find much reason to spend valuable dollars or time looking for uranium with so much uncertainty hanging over the sector.
And Australia's not alone. . .
Peter Krauth, Money Morning