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A wave of mine closures and the rollout of nuclear-power plants world-wide are fueling bullish bets on the long-depressed uranium market.
Several investment funds have launched this year to wager on a turnaround in the radioactive material used in nuclear reactors. Since the 2011 Fukushima disaster in Japan, uranium had been the worst-performing commodity as countries re-evaluated their reliance on nuclear power.
Before Fukushima, uranium prices were trading at about $70 a pound. In May 2017, they hit $19.60—a level at which at least three-quarters of the world’s uranium production is unprofitable, according to estimates. In the U.S., low uranium prices prompted producers to petition the Trump administration to cap imports. The Commerce Department said last month it has opened an investigation that could lead to tariffs.
Uranium doesn’t trade in an open market like many other commodities, and many transactions occur under negotiated private contracts. But an estimated spot price calculated by consulting firm Trade Tech climbed in recent weeks to $25.85, its highest in more than two years.
China’s investments into nuclear reactors and the closure of several uranium mines are spurring the creation of new funds that are betting the uranium market will finally turn. Marcelo Lopez is running a new $30 million uranium investment fund at L2 Capital Partners in Brazil.
Mr. Lopez anticipates a rally in prices. “I’m seeing the biggest opportunity of our lifetime today in the uranium space,” he said.
The recent rise in prices comes in response to supply cuts, which could result in upward pressure for the long term.
Kazatomprom, the world’s biggest uranium producer based in Kazakhstan, said in December it was cutting output by 20%. Last month, Canada’s Cameco Corp. announced it would suspend operations at its big McArthur River and Key Lake mines indefinitely.
The impact of Cameco’s move on the uranium market can’t be underestimated, said Mr. Lopez, adding that it was the “equivalent of Saudi Arabia leaving the oil market.”
Supply is dropping at the same time demand is poised to rise.
China is home to 39 of the world’s 450 nuclear reactors and has another 19 reactors under construction, according to the World Nuclear Association. The country intends to build another 203 reactors as an alternative to coal-fired power plants that contribute to air pollution. Russia and India, which have 37 and 22 reactors, respectively, are each building six reactors as part of longer-term plans to more than double their existing capacity.
Capacity in the Middle East is forecast to jump from 3.6 gigawatts this year to 14.1 gigawatts by 2028, according to the U.S. Energy Information Administration, as the region looks to reduce its reliance on fossil fuels.
Meantime, developed economies, such as the U.S., are likely to maintain nuclear power’s share of their electricity production, given constraints in the output of other fuels, analysts say.
“There’s no doubt that global energy requirements are increasing dramatically,” said Peter Bacchus of Bacchus Capital Advisers, an advisory firm in London. “Uranium has to be part of the solution.”
Bacchus Capital was central in the creation and listing of Yellow Cake PLC, which made its debut on the London Stock Exchange this month. The company, which buys and stores refined uranium, raised $200 million. Money manager BlackRock Inc. bought a 4.7% stake.
Tribeca Investment Partners, a fund manager in Australia with $1.8 billion in assets, also backed the Yellow Cake IPO and launched this month a uranium-specific fund. It aims to raise about $74 million to bet on uranium’s resurgence.
There have been false starts for uranium before. The end of a program to recycle old Soviet nuclear warheads into reactor fuel in 2013 and the restart of the first Japanese reactor in 2015 were touted as potential catalysts for a turnaround, but they failed to deliver a sustained recovery in prices.
Write to Paul Garvey at paul.garvey@wsj.com