How Long Will it Take for Uranium Prices to Recover?

Cameco Corp (TSX:CCO)(NYSE:CCJ) shares plummeted on Thursday after analysts said the uranium restart will take longer than expected. Are they right?

| More on:
The Motley Fool

On Thursday, shares of uranium producer Cameco Corp (TSX:CCO)(NYSE:CCJ) fell by over 4% after Cowen analysts downgraded the company. The analysts reassessed their market outlook for uranium and determined that a meaningful recovery will not come until 2017.

There are plenty of reason to doubt these analysts. For one, uranium prices are so low that many producers are losing money. Japan and other countries are paying dearly for shutting down its nuclear program. And growth in nuclear power from China should help uranium prices as well.

But these analysts must be taken seriously, especially since their views are shared by many others. On that note, here are the top three reasons to avoid Cameco.

1. Issues with Japan

After Japan shut down its nuclear program, it has seen its energy costs skyrocket. To illustrate, the country is the world’s largest importer of liquefied natural gas, and the second biggest importer of coal. Bringing back nuclear power would help relieve that burden.

But this is proving to be a slow, painful process. Although two nuclear reactors have passed the new regulator’s safety standards, polls show that 60% of the country is opposed to those plants restarting. And Prime Minister Shinzo Abe is not as popular as he once was, so he may not have the political capital required to bring back nuclear power in a big way.

Recently, the restart dates for those two plants have been pushed back to 2015. This will clearly take some time.

2. Ample supply

Incredibly, even in the face of low prices, uranium production has actually increased in the past couple of years. Why is this the case?

Put simply, one has to remember that even if a producer is losing money, that doesn’t mean that the mine will be shut down tomorrow. There are plenty of reasons to keep production going.

For one, starting and stopping mines can be expensive, especially with unionized labour. So it may be easier to ride out the downturn, especially if politics are involved. Furthermore, if the long-term outlook for uranium demand is promising, there may be incentive to keep production going. And finally, no one wants to shut down a mine only to see competitors benefit from a price increase – so the industry turns into a game of chicken.

So like the Japanese restart, this could take some time.

3. No need in the United States

Finally, while nuclear power makes sense in many parts of the world, the United States is needing it less and less. Cheap natural gas means that amply power can be generated from gas power plants, many of which come from converting existing coal plants.

Meanwhile, nuclear power continues to face immense regulatory hurdles, and obstacles remain with how to dispose of the waste effectively.

So to sum up, the long-term fundamentals for uranium remain intact. But there are plenty of obstacles in the years ahead. Cameco and its shareholders will have to ride them all out.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Bank sign on traditional europe building facade
Bank Stocks

Are Canadian Bank Stocks Still Undervalued?

Bank stock are moving higher. Is it time to buy or wait?

Read more »

You Should Know This
Stocks for Beginners

5 Things to Know About Cargojet Stock in November 2022

Cargojet (TSX:CJT) stock should continue to see massive growth in the near and long term, thanks to long-term agreements and…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Better Buy: BCE Stock or Enbridge?

BCE and Enbridge pay growing dividends with high yields. Is one more attractive today?

Read more »


TFSA: 3 TSX Stocks to Buy With the New $6,500 Room Limit

Canadians who are eager to utilize the new $6,500 room limit in 2023 should look to TSX stocks like Aritzia…

Read more »

Financial technology concept.

The Smartest Stocks to Buy With $20 Right Now and Hold Forever

Given the favourable market conditions and their growth initiatives, these three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

2 Unstoppable Dividend Stocks to Load Up in Your TFSA

These two dividend stocks provide long-term passive income that comes out every month, thanks to lease agreements lasting over a…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Tech Stocks

3 Healthcare Stocks to Buy for Long-Term Passive Income

Healthcare stocks provide exposure to an essential service sector. They are also the best for passive income in the short…

Read more »

potted green plant grows up in arrow shape

4 TSX Growth Stocks to Buy and Hold Forever

Here's why TSX growth stocks, and these four stocks specifically, are some of the best investments you can buy in…

Read more »