Uranium prices are at their lowest level in nearly eight years, as investors and utilities give up on a quick revival for nuclear power.
The market for the radioactive fuel hasn't recovered from the 2011 earthquake and tsunami that devastated Japan's Fukushima Daiichi power plant. Due to safety concerns following the disaster, only two of Japan's 50 reactors are running today, while Germany and France are reducing their reliance on nuclear power. In the U.S., some utilities have abandoned plans for new nuclear plants.
Spot uranium prices are down 22% this year. They traded at $34 a pound on Tuesday, their lowest level since November 2005. The Dow Jones-UBS Commodity Index, which tracks 20 commodities, is down 9%.
As the slump in commodities gathered pace late last year, some investors sought solace in uranium, a small market where futures are traded mainly by utilities and miners but the price can be traded by proxy through stocks or exchange-traded funds. Hopes were high that Japan, a major consumer of uranium, would get its nuclear reactors running again and demand for the fuel would accelerate.
Instead, as slowing global economic growth has hit prices for everything from copper to coal to corn, uranium has suffered because struggling economies require less electricity. But uranium's losses have been sharper than many other raw materials, as the fuel also faces antinuclear politics, which are expected to hurt demand even if economic activity picks up.
"You're not dealing with a commodity like copper or gold," said Jeff Wright, a managing director of equity research with H.C. Wainwright & Co. "This is not only an extremely volatile commodity, but a volatile business. It only takes one headline, somewhere in the world, and 15 years of work is gone down the drain."
Investors trade uranium mainly through exchange-traded funds, such as the $125 million Global X Uranium ETF, URA +0.31% or the stocks of mining companies such as Cameco Corp., CCJ -1.46% Uranium One Inc. UUU.T 0.00% and Paladin Energy Ltd., PDN.AU +2.93% which have a combined market value of about $11 billion.
The Global X Uranium ETF, which launched four months before the 2011 Japanese earthquake and tracks the price movements of nearly 20 listed miners and explorers, is down 18% this year, compared with an 18% gain in the S&P 500 index. The fund's price has fallen about 75% since the earthquake.
After shutting down all of its nuclear reactors in 2011, Japan was expected to start powering up many of the plants as early as this year. Instead, utilities have asked for permission to restart just 12, beyond the two that already received approval and are running. The approval process ahead is likely to be slow.
In North America, the shale boom has given utilities building power plants the option of relying on cheap natural gas instead of uranium. In Europe, political opposition to nuclear energy has grown. Germany has pledged to shut off its nuclear reactors by 2022, while France plans to lower its reliance on nuclear energy to 50% by 2020, from up to 80% today.
Malcolm Gissen, president of San Francisco-based investment advisory firm Malcolm H. Gissen & Associates and co-manager of the Encompass Fund which invests in global resources companies, has reduced his holdings of uranium mining stocks over the past few months.
He called uranium's decline "an aberration" sparked by one-time events like Fukushima and its blowback. But he added "the price is unlikely to jump quickly."
Investors point to rising uranium stockpiles as a reason for prices to remain low. Miners are sitting on piles of unsold uranium, with global supply currently exceeding demand by about 25 million pounds, according to Ux Consulting, a nuclear-research firm. The market was in balance prior to the Fukushima accident, according to Ux Senior Vice President Jonathan Hinze.
"I don't think there is going to be any rush back" to uranium, said Neil Gregson, who oversees $3.5 billion in natural resources investments for J.P. Morgan Asset Management. "It is hard to see why a general resources fund might invest in uranium." Mr. Gregson said he has about 1% of his portfolio in uranium stocks, a historically low exposure.
But Avy Hirshman, chief investment officer with Newgate Capital Management LLC, which oversees $1.8 billion, said prices are now low enough for some mining companies to cut back on production. Eventually, it will fall enough to whittle away at spare supplies, causing prices to rise again, he said.
"We like to be buying in this type of an environment," Mr. Hirshman said, adding his firm is considering investing in uranium miners after staying away from the sector in recent years.
J.P. Morgan Chase & Co. analysts predict an average uranium price of $59.20 a pound in 2014.
However, other investors and analysts say it will be several years before uranium prices bounce back. In the meantime, political opposition and cheap prices for alternative fuels, like natural gas and coal, make a recovery unlikely.
"I believe that demand for uranium over the next three to five years will certainly exceed supply," Mr. Gissen said. "I am, however, a cautious investor and will want to see that utilities are buying, and locking in higher rates, before we increase our positions."
