Commodities Rout Not Quite Over Just Yet
We have not been true believers in the recent oil rally. And we still aren’t. Oil made a huge move, at one point nearly doubling in three months, but it’s still not at levels where US shale oil producers or Canadian tar sands producers can thrive, or even survive for long. We think the pain isn’t over.
We have seen this play out in US natural gas. Every major rally brought new production on line followed by an even greater natural gas glut – along with a subsequent crash in prices. The process has been going on since 2009 – six full years – and it is destroying the industry. But because the industry is now being sufficiently destroyed, with creditors busy licking their wounds and many stockholders wiped out, we feel the bottom for natural gas is in. Not for drillers – but for the price of US natural gas.
That’s not yet the case with oil.
Other commodities have rallied too, such as copper, only to swoon again. Agricultural commodities, after having gotten sacked, are struggling to creep higher. The S&P GSCI Agriculture index is up 12% from its February low, but it too appears to be out of breath. Corn is up 18% since the beginning of April, but at just over $4.14 a bushel, it’s still at beaten-down levels.
In short, we feel the commodities rout isn’t over yet. But we know that there will be sharp rallies in individual commodities, and some of them may even power higher this year, like US natural gas. Yet, natural gas drillers – those that aren’t yet in bankruptcy – are too shaky and loaded up with too much debt to be of interest to us. We’re thinking more about natural gas itself.
One commodity we rarely mention is uranium. It’s one of the most hated commodities. It has been particularly brutalized. Being long uranium has been a widow maker trade for a decade. Every rally over the past 10 years has been followed by an even bigger crash. It too has risen from its decade-low in February, only to drop again. For some people, it looks like a buy. For some is has looked like a buy for years. But not yet, says Matt Badiali of The Growth Stock Wire below.
Matt Badiali’s analysis:
“We had anticipated things would get better sooner.” That’s what Tim Gitzel, the CEO of uranium major Cameco (CCJ), told shareholders at the company’s annual meeting last month.
In April, Cameco suspended operations at its Rabbit Lake uranium mine in northern Saskatchewan. Until then, Rabbit Lake was the longest-producing uranium operation in the province. Cameco also delayed development of wells at its U.S. operations. The decisions caused more than 500 employees to lose their jobs.
Gitzel’s words reflect the tough uranium market that’s still ongoing today.
A bear market has gripped uranium for the past decade. Conditions began to improve slightly from mid-2010 to early 2011. But in March 2011, a magnitude 9.0 earthquake and tsunami caused severe damage to the Fukushima Daiichi nuclear plant in Japan… and sent the industry reeling again.
The resulting decrease in demand coincided with competition from low-priced natural gas and coal. This combination has sent uranium prices plummeting to their lowest level since 2005…
As you can see in the chart below, the trend looks bleak for uranium…
And even though uranium prices are down about 80% from their peak in mid-2007, improved plant efficiencies and the closure of older plants have slowed demand growth.
Uranium miners like Cameco have been hit hard in the past couple of years. Here are the returns since their 2014 highs:
|
Company
|
Market Cap
|
Return*
|
|
Energy Fuels (EFR.TO)
|
C$150 million
|
-78%
|
|
Denison Mines (DNN)
|
$250 million
|
-72%
|
|
Fission Uranium (FCU.TO)
|
C$300 million
|
-63%
|
|
Paladin Energy (PDN.TO)
|
C$360 million
|
-62%
|
|
Uranium Energy (UEC)
|
$91 million
|
-61%
|
|
Cameco (CCJ)
|
$4.7 billion
|
-51%
|
Low prices devastated production. In the first quarter of 2016, U.S. production of uranium fell from 1.2 million pounds to 626,000 pounds, a decline of nearly 50%.
That drop in production makes sense when you look at the decline in nuclear power plants in recent years. In 2012, there were 104 nuclear power plants operating in the U.S. Today, there are just 99. According to the Nuclear Energy Institute, we could see up to 20 of the existing plants close early.
It’s clear uranium miners need more plants to come online. Most of this new production will take place in other parts of the world, namely China, India, and Korea.
Like all commodities, uranium is a cyclical industry. We expect the market to improve eventually. Cameco’s decision to curtail production in the U.S. and Canada is a positive. The opening of new nuclear power plants will help, too.
Demand will improve once the plants sign long-term supply contracts. Until now – with prices falling at a steady clip – they’ve chosen not to lock in higher prices.
That’s why we’re avoiding these uranium miners for now. We still need to be patient with uranium stocks. We’ll keep an eye on the market and wait for a turn. By Matt Badiali of theThe Growth Stock Wire
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I know a guy who studied uranium for a year and then made his move- a week later the Japanese tidal wave took out the reactors cooling system and she began to cook.
Shortly after, Angel Merkel retreated to her office for about a week-put all other biz on hold- then came out and announced ‘we’re out of nuclear’
They had just finished a very expensive re-build of a huge reactor- or maybe it was new, can’t remember but it was weeks from start up when they got the word.
Since the shut down in Japan (which led to a very hot summer) some are creeping back on line, but it’s a long road back.
Hasn’t President Obama made plans for a one trillion dollar upgrade to our entire nuclear arsenal over the next 30 years??
Not sure you require uranium for bombs. The uranium bomb dropped on Hiroshima was a uranium bomb- I believe Nagasaki was a plutonium bomb.
Today I think that all bombs are plutonium which you make in a reactor.
Also not sure about H-bomb- which is fusion rather than fission- roughly comparable I think to a creating a small star (sun) on the earth.
I think the US has enough existing reactors to supply its plutonium needs.
Getting to what I know, the most difficult part is delivery- especially from submarine. Britain is looking at I believe 140 billion to upgrade its submarine deterrent- which it can’t afford.
Since there are so many ‘I thinks’ in this already, I think a very good start on nuke disarms would be to retire the nuke missile submarine.
I think you need Uranium-238 irradiated with neutrons to make reactor grade Plutonium.. Not weapons grade but that’s another process but it all starts with Uranium..
I’m with you on retiring some of these nukes.. One trillion dollars would pay for a lot college educations, would rebuild a lot of bridges, would build a lot of affordable housing.. Eisenhower warned us in 1960..
You either need lots of nuclear fission power plants and breeder reactors or ultra centrifuges. I’m sure the desire to upgrade the nuclear weapons of the West is the biggest factor behind the new initiatives for new nuclear power stations.
Nuclear isn’t profitable anywhere in the West if you calculate the real cost. Much of the cost e.g. for decommission, long term storage, security etc. is subsidized or falls directly on the tax payers. And newer ‘safer’ designs are even more costly and have huge delays in deployment due to ‘unexpected’ problems (just read about that new ‘safe’ nuclear reactor in Finland).
It’s a total waste of money but of course great business for those who are in the industry at they have a huge foot in the door with politics. No politicians will shelve a program that has been wasting billions every year, it’s much easier to pretend that the problems will be solved an continue on the same track (same applies for nuclear fusion BTW, although a bit less because the nuclear weapons factor is absent there).
Not having nuclear armed submarines could leave a country vulnerable. No deterrence and all the infrastructure or benefits derived from eliminating submarines could be anhialated in an instant.
Re: the deterrent of submarines: Is it really likely that a Russian first strike ( they are the only credible threat at present) could take out all the ground- launched ICBM’s in a country as vast as the US?
Yes the subs are a deterrent- against the other guys subs. The US has several thousand nukes- ten would be enough to take out urban Russia.
Our biggest security threat is not the intentional launch- the one that ends the human race- it is an accidental launch, leading to a mass launch. This has almost happened several times.
May 24, 2016 “Boron Maps Could Help Guide Fukushima Decommissioning” –title of an article in Asian Scientist–Extract: “By mapping the distribution of Boron compounds in molten debris, researchers can determine the re-criticality risk of the nuclear reactor in the plant.” I owned Uranium and other mining stocks when the earthquake hit. I sold immediately, but have followed the news on and off. There is risk of criticality being reached. They cannot even observe properly the area. They cannot prevent leakage into the Pacific and counts are”not insignificant” off of the coast of the Northwest U.S. And they were shy in the early days of asking for help. In Go we talk about “Urgent before Big”; climate change may be urgent but doing something about closure on Fukashima d’Ichi is Big.
Agnes: I read an article at a science site that reported that prototype robots, taking up to 2 years to build, melted before any critical information could be obtained. It is hard to understand the magnitude of problem without dependable measurements. But, if I stuck my thermometer out in the morning and it melted, I would declare it to be really hot and really bad:)
Yes, the usual spin from the technocrats is that they are fully in control, that ‘this couldn’t happen here’ and that people are reacting emotionally, don’t understand the subject and shouldn’t have a say (in e.g. nuclear policy). Please keep the money flowing …
However, reality is a technological nightmare in much of this industry and despite many years of empty promises all the basic problems (radioactive waste, nuclear proliferation etc. etc.) remain unsolved and get bigger with every day that this industry continues. And it’s not only the big disaster sites like Chernobyl or Fukushima, the same applies for e.g. breeder reactors in France and UK or the ‘long term storage’ in Gorleben in Germany.
The big money flowing into and the big lies flowing out of Turkey Point in South Florida is the wooden stake in the heart of nuclear Florida.
Money in the pockets of the owners AT the expense of safety will kill nuclear presently and for generations. That means everywhere.
When Canada sold India a Candu reactor we got the signatures:
I (we) are over 21 and will not use reactor to develop a bomb.
Shortly after India became a nuclear power Pakistan felt it had to follow and soon did.
I think we are living in a dangerous time re: nukes because there is a feeling of complacency- the Cold War is over etc. Also Russia with a huge arsenal may be less stable than the USSR.
Then there is the ME.
Ok I got the Urgent and the Big mixed up :(
No you didnt.
Urgent, is followed by big, and BIG BANG.
Things, always get smaller and simpler words as they get worse.
Encountering strong resistance, is frequently followed by the words Tactical withdrawal’s.
Then followed by, RUNNING, VERY F—— FAST.
q
d lolz :)
I did a bit of research on status of Thorium…
https://www.technologyreview.com/s/542526/china-details-next-gen-nuclear-reactor-program/
and
“China Could Have a Meltdown-Proof Nuclear Reactor Next Year”
Two high-temperature, gas-cooled
“other advanced-reactor projects are under way in China, including work on a molten-salt reactor fueled by thorium rather than uranium (a collaboration with Oak Ridge National Laboratory, where the technology originated in the 1960s)”
https://www.technologyreview.com/s/600757/china-could-have-a-meltdown-proof-nuclear-reactor-next-year/
India has Thorium deposits, estimated at 360,000 tonnes, far outweighing its natural uranium deposits at 70,000 tonnes. India’s thorium reserves make up 25 percent of the global reserves. India is working on Thorium also.
Plus my Dad says it is tenable…he was reading journal articles back then (a metallurgical engineer).
Of course you can’t make bombs from it. (Uh, easily)
Elsewhere on the web someone suggested that since we need rare earths we could just start saving the Thorium also, Alas all the Rare earth production is in China(one small one in Malaysia).
Thorium Reactors don’t go bang and don’t produce Weapons usable waste.
Which is why iran refused a free one, in the fight’s over its nuclear weapons program.
I would say china and particularly India have the easy Thorium and rare earths, to date.
If there is Thorium in India, its in Australia, South Africa, and probably south America. As they were all joined together with Antarctica, they just haven’t looked for it hard, YET.
The chinese haven’t really pioneered anything, since the ming.
Maybe Thorium reactors will be their new thing.
The only thing that restricts the urban Electric car, Public transport, and Motorcycle, is the availability of cheap non Oil/Coal based Electricity.
Why do all these sites have to be so BIG. Big seems to be the big problem…big expense, big issues, big lies, big messes.
What happened to the miniaturized reactors…neighborhood sized Toshiba instant shut down ones?
As far as I am concerned, the U.S. Navy is the only competent supervisor and administrator of nuclear energy.
Interesting?
…”On April 26, in testimony before the US Senate Energy and Natural Resources Committee’s “Hearing to examine challenges and opportunities for oil and gas development in different price environments,” Suzanne Minter, Manager, Oil and Gas Consulting at Platts’ Analytics presented pretty interesting details that help explain why the volume of US shale oil has not yet collapsed despite a fall in global oil prices from around $103 a barrel in September 2014 to a range of $40-50 a barrel today. Most shale projects were to have gone under at prices below $65 or thereabouts.
…”“In 2015 as producers cut their rig fleets, the rigs remaining now sit on the best known acreage. Resultantly, the average IP rate in the Eagle Ford increased by 50% to 662 barrels of crude per day and average drill times have fallen by 25% to 11 days. As a result, the current rig count of 49 in the Eagle Ford could theoretically hold production flat at the current estimated level of 1 MMb/d, so long as those 49 rigs stay in the basin through 2020 and continue to drill one well each every 11 days with an IP rate of 662 barrels each. This also means, that when recovery occurs, the Eagle Ford would only require 125 rigs to create the 3.3 MMB/d previously projected by 2020 that had once required 209 rigs to produce.“…
http://journal-neo.org/2016/06/01/saudis-have-lost-the-oil-war/
Spencer: Most shale oil plays are still uneconomical at $50/bbl. The Saudis make pretty good profits at that price, while most of the shale producers lose money.
Your analysis is interesting, but fails to account for the geology of the Eagle Ford. For the last year or so, the operators have been drilling their best prospects within the basin. Going forward, the prospects are unlikely to be as productive. Then there is the rapid drawdown of these wells, which is no small characteristic of these tight reservoirs. The Red Queen effect still rules the shale plays.
This guy sums up the Thorium state of play(16 Ap16)as far as a financial play is concerned.
http://www.insidefutures.com/article/1699353/Rare%20Earths%20and%20Energy%20-%20Thorium.html