The uranium market is testing fresh lows related to a disaster that occurred more than two years ago. A post-tsunami supply glut in Japan has helped drag prices for the nuclear fuel down to levels not seen since December, 2005.
Japanese utilities have been preparing to restart several of 42 reactors that were shut down after a tsunami caused a meltdown at the Fukushima-Daiichi nuclear plant in March, 2011. Earlier this month, Japan introduced legally binding requirements for nuclear plant operators bolster their tsunami defences, check for active earthquake faults under their plants, set up emergency command centres and install filters to reduce radioactive discharge from reactors.
The most actively traded uranium contract on the New York Mercantile Exchange had fallen to $34.50 (U.S.) per pound at market close on Friday, down 3.5 per cent in its biggest drop this year. Shares of Saskatoon-based producer Cameco Corp. fell 3.5 per cent to $21.13 (Canadian) on the TSX on Monday, its lowest close since mid-May. "Cameco has recently indicated that it believes that six to eight reactors could be operating in Japan by the end of 2013, including the two reactors that are currently operating," according to a report released Monday by TD Securities Inc. However, it will likely take six to nine months for the Japanese Nuclear Regulatory Authority to do the necessary inspections, and the restarts on their own won't likely lead to a rebound in uranium prices, the report said.
"It is widely expected that Japanese utilities have accumulated excess inventories of uranium fuel over the past two years and it could take as long as five years for inventories to normalize," TD added.
Still, the regulatory moves mean that the restarts will move ahead, albeit more slowly, possibly creating a price floor for uranium. At the very least, they ease concerns that Japan was planning to sell off some of that excess inventory – estimated to be 90 million pounds according to Trade Tech – a move that would have further driven down the price of uranium, which has already fallen more than 30 per cent over the last year, according to the TD report.
In addition, with the U.S.-Russian Highly Enriched Uranium Agreement – under which Russia was dismantling old Soviet-era nuclear warheads and selling the uranium– set to expire this year there will be a lot less uranium on the market in 2014. About 25 million pounds less, according to TD.
"These realities underpin a global supply shortfall that we expect to exert upward pressure on prices during 2014," said David Sadowski, an analyst with Raymond James in a research note.
While TD Securities has a "hold" rating on Cameco shares and cut its price target to $22.00, Mr. Sadowski is more bullish, rating Cameco as "outperform" with a price target of $25.00. Mr. Sadowski rates Uranium One as "market perform" with a $2.86 price target.