Can the uranium rally keep going?

Last year was a pretty good one for most commodities. But not for uranium. The fuel for nuclear power slid to a 12-year low of $18 a pound. But last week it bounced by 10% after Kazakhstan, the world's biggest producer, said it would cut output by a tenth, or 3% of total global production. It has decided that, thanks to a glut, the material is worth more in the ground for now. The move "may be the inflection point" for uranium-related assets to "head higher across the board", Rob Chang of Cantor Fitzgerald told Bloomberg.com.

A favourite among investors (including MoneyWeek) in the commodities upswing of the 2000s, uranium peaked in 2007 at $137 a pound. As with all raw materials, rising prices stimulated supply, ending an upswing that had been overdone in any case, but the market suffered a major additional setback. The accident at Japan's Fukushima nuclear plant put a major dent in demand as Japan froze plans to build new reactors and Germany decided to go non-nuclear completely. Supply built up to such an extent that late last year Japan's inventories were big enough to power the country's reactors for at least six years.

Nevertheless, demand has started to pick up again. Japan plans to bring seven reactors back online by March 2017, followed by a further 12 by the spring of 2018, notes Zacks.com. The long-term increase in demand for electricity is also benefiting nuclear power, with emerging-market heavyweights India and China both growing capacity. Demand could also benefit from the election of Donald Trump, says the Financial Times. He has made clear his support for nuclear energy and also seems keen to expand America's nuclear arsenal, even if that sparks an arms race with Russia. The uranium market, then, may well be over the worst. For investors who think so, the Geiger Counter fund (LSE:GCL), which invests in a range of uranium-related companies, may be worth a look.

MoneyWeek

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