Uranium Down 89%: Green Light, or Investors Kryptonite?

The highly cyclical commodity uranium has been in a bear market ever since a tsunami caused the Fukushima nuclear disaster on the 11th of March 2011. Essentially, due to negative sentiment and the decommissioning of nuclear power reactors, the demand for uranium has gone down. This has lead to the Global X Uranium ETF (URA) and the uranium spot price to plummet by 89% and 69%, respectively.

One could argue the downward momentum will continue. Switzerland, Germany, Belgium, and Spain, reacted to Fukushima by deciding to phase-out nuclear power, whilst Japan decommissioned and suspended many plants. Most of Europe abstains from using nuclear energy, besides France, where it makes up 39% of energy consumption. Further, companies like Silex Laser Enrichment and Hitachi Global Laser Enrichment are developing methods to re-enrich depleted uranium, which could harm the price of uranium and mining companies. Also, there is currently an oversupply of 23 M lbs.

Now, in the last bull market that started there were 24 reactors under construction, today there are 60. There were 3 major new mines under construction, today there are none. The price of uranium went from $8/lbs to $137/lbs, with far less appealing demand dynamics.

    **That’s a price increase of over 17x!**

However others, myself included, would argue that a bull market will follow this bear market. Although there is an oversupply of uranium, this is mainly due to secondary supply, which has resulted from, for example, the sell off of inventory from reactors that have gone off-line in Japan post-Fukushima, as well as other factors other factors. Without this secondary supply, there is an excess demand of 22 M lbs. Soon Japanese nuclear plants will not sell their inventory, because their reactors are starting up again. Further, the number of mines in the world has gone down from 500 to 40, as it costs around $50/lbs to mine uranium and the price of uranium is currently $20/lbs.

In terms of demand, there are 450 operable reactors in 31 different countries, 60 under construction and 168 reactors on order, or planned. This growth comes from countries aiming to cut greenhouse gas emissions, such as China, which accounts for 33% of potential nuclear growth, Brazil, and India. 20% of US the nuclear energy grid is nuclear and there are four more reactors planned to be built in the coming years. The main catalyst for demand is the contracting cycle: despite the growth in demand, many nuclear energy producing companies do not have contracts to obtain uranium at 2020. This should mean the price of uranium and the mines that produce it will soon reflect the increase in demand and the decrease in supply.

What do you think monkeys? Is there anything I left out? Do you think downward momentum will continue and that the market will not recover from the negative sentiment around uranium? Or, has this sentiment created great supply/demand dynamics that should be taken advantage of?