Sweta Killa: Though the broad energy sector has been hit badly in recent months, uranium has shown a nice comeback following the meltdown from the Fukushima disaster in March 2011. In fact, it strongly bounced off as much as 57% from its nine-year low hit in May turning out to be the best performing energy commodity this year.
The atomic fuel is indeed heading towards its first annual gain since 2010, returning 18% in the year-to-date time frame.
Behind the Surge in Uranium
The upside was mainly driven by ongoing nuclear developments across the globe, Russian sanctions, and a series of operating glitches at some of the mines. A major expansion is underway in Japan – Asia’s largest uranium user. The country is looking to restart its first nuclear power facility early next year as Kyushu Electric Power Co. received local approval for two reactors at its Sendai power station to resume operations.
Meanwhile, China, the world’s largest energy consumer, is seeking to expand its nuclear power capacity threefold by 2020 and is expected to build the maximum number of reactors globally over the next three years.
Apart from Japan and China, other nations like Russia, India, Brazil, England, Romania, South Korea, Saudi Arabia and the UAE are also focusing on the deployment of a large number of nuclear reactors. Further, the need for new energy sources to avoid the negative effects of using coal and reduce dependence on greenhouse gases has resulted in a growing demand for uranium, driving the nuclear power sector.
Anything to Worry?
Investors are concerned about the sustainable price increase of uranium amid the energy market rout and uranium surplus. This is because the uranium supply glut is expected to enter into the sixth year even after production disruptions from Australia to Africa as well as the strike at Cameco McArthur River operation in Canada.
Though the recent Western sanctions against Russia over its conflict in Ukraine had raised speculations of curtailing global supplies, it proved to be short-lived. Notably, Russia is a leading provider of enriched uranium services to many Western utility companies.
However, the deployment of a large number of reactors globally would reverse the supply glut in the long term, resulting in higher uranium prices. Investors could definitely take advantage of this upcoming surge by focusing on the only pure play – Global X Uranium ETF (NYSEARCA:URA) – which tracks the Solactive Global Uranium Index.
The fund manages an asset base of $235 million while it charges 69 bps in annual fees. Volume is good as it exchanges about 258,000 shares a day. In terms of performance, the fund is down about 17% in the year-to-date time frame and is underperforming the broad market fund and many other products in the materials space by wide margins.