After 31 Percent Surge, Uranium Is Top-performing Commodity in 2020 Year-to-Date

RIO DE JANEIRO, BRAZIL – While the coronavirus is slaughtering the prices of most commodities, uranium has skyrocketed.

The radioactive metal used as nuclear fuel soared by 31 percent this year, making it the best performing commodity in the world. The gains were spurred by mine shutdowns that wiped out more than a third of global annual production, at a time when demand from the plants remained relatively stable.

“It’s a double push in favor of uranium,” said Nick Piquard, portfolio manager at Horizons ETFs. “Covid-19 probably hasn’t affected demand for nuclear power as much, but it’s certainly impacting supply.”

Although demand for energy, including nuclear power, is hampered by the pandemic, many atomic power plants are expected to continue operating. This is partly because it is easier to turn on and off coal- and gas-fired power plants than nuclear plants. Therefore, it is worth keeping them running, even if demand for electricity decreases somewhat, Piquard explained.

The uranium industry has been in crisis since the Fukushima disaster in 2011, which led to the closure of most of Japan’s nuclear reactors and a worldwide nuclear power reassessment. The change has caused the metal to pile up, dropping prices by as much as 75 percent from the peaks reached in 2011.

Faced with low prices, two industry giants – Kazatomprom and Cameco – reduced uranium production over the past three years to shrink the commodity’s global surplus.

The Covid-19 crisis has sharply accelerated this process. Leader Kazatomprom announced the reduction of operational activities in Kazakhstan’s uranium mines for about three months in April.

Cameco further reduced production last month by shutting down activities at Cigar Lake, the world’s most productive mine, located in Canada. The suspension was then extended for an “indefinite” time on April 13th.

In all, the three-week stoppages cleared approximately 46 million pounds, or some 35 percent of global annual uranium production, according to Mike Kozak, an analyst with Cantor Fitzgerald.

Uranium futures contracts negotiated in New York have increased approximately 36 percent since mid-March to US$32.50 (R$163) per pound. Stocks and funds traded on the stock exchange (ETFs) followed the appreciation trend.

Fears over future supply are behind the rise in uranium prices. Power companies typically hold enough stocks for a year and a half, or even five years of operation, in order to prevent logistical issues and keep energy flowing. More recently, nuclear power companies have been able to meet their needs by using surplus stocks that have built up around the world.

However, with supply and price shocks impacting the market simultaneously and stocks already low, uranium buyers, such as power plants, may “face difficulties in securing material supplies,” Kozak of Cantor cautioned.

The pandemic has affected ships, trucks, and planes that carry commodities from the suppliers to their clients. “For some time we have been saying that although stocks in our sector seem high, it is the mobility of stocks that matters,” Cameco spokesman Jeff Hryhoriw said in an e-mail. “We believe this will be the focus during this unplanned event.”

And the situation could worsen. “History suggests that mobility declines in a high-priced market, given concerns about security of supply,” Hryhoriw added.

Source: Bloomberg Brasil