Uranium Price: Is Uranium Ready To Mount A Rally

Uranium Price: Is Uranium Ready To Rally

Updated March 2023

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The uranium market is extremely oversold, but the trend is neutral and presents a fantastic long-term opportunity. Despite being at dangerously low levels, uranium supplies have not increased; nuclear plants cannot function without them.

The US and EU rely heavily on Russian uranium imports for their energy needs. Uranium has a strong support layer at the 36 to 39 range, and if it holds above these levels on a monthly basis, the outlook remains neutral with a bullish bias. A monthly close at or above 48 would pave the way for much higher prices, and trading above 56 for three weeks would virtually ensure a test of the 84 to 90 range.

Courtesy of cameco.com

Demand exceeds supply

In the past seven years, the uranium market has faced a supply deficit of approximately 50 million pounds, leaving mine production unable to meet demand, which sits at 180 million pounds. Despite this, the deficit has been filled annually with 50 million pounds from alternative sources. In addition, the Sprott Physical Uranium Trust and Yellow Cake have acquired a further 70 million pounds.

While 90% of uranium demand is met through primary production from mines, secondary supplies from recycling and stockpiles supplement the market. Unlike other mineral commodities, uranium has not followed the long-term trend of declining real prices due to cyclical fluctuations, with depressed prices in the 1980s and 1990s followed by a recovery from 2003 to 2009 before weakening again.

Most uranium trade occurs through long-term contracts of 3-15 years, with prices tied to the spot price at the time of delivery. Despite the recent supply deficit caused by the Ukraine conflict, CEO Ian Purdy of Paladin Energy Ltd. expects a record year of term contracting. The company plans to restart the Langer Heinrich mine in Namibia by the first quarter of 2024. Industry veterans believe uranium prices still need to increase to spur significant mine restarts or capital-intensive builds.

EIA’s Bullish Outlook on Uranium Prices

In 2021, the owners and operators of U.S. civilian nuclear power reactors purchased 46.7 million pounds U3O8e of uranium from U.S. and foreign suppliers at a weighted-average price of $33.91 per pound U3O8e, which is 4% lower than the 2020 total. Most of the uranium delivered in 2021 was of foreign origin, with Kazakhstan being the top source. COOs purchased three types of uranium from 32 sellers, with 19% of the uranium delivered being purchased under spot contracts and the remaining 81% being purchased under long-term contracts.

COOs signed 27 new purchase contracts with deliveries in 2021, and at the end of 2021, the maximum uranium deliveries for 2022 through 2031 under existing purchase contracts for COOs totalled 180 million pounds U3O8e. However, unfilled uranium market requirements for 2022 through 2031 totalled 182 million pounds U3O8e, suggesting that the market requirements for COOs will be high in the next ten years. In 2021, COOs delivered 34 million pounds U3O8e of natural uranium feed to U.S. and foreign enrichers, with U.S. enrichment suppliers receiving 43% of the feed.

COOs purchased 14 million separative work units (SWU) under enrichment services contracts from 11 sellers for $99.54 per SWU in 2021, with foreign-origin SWU accounting for 81% of the purchases, including 28% from Russia. EIA.Gov

Uranium Price Outlook

Uranium prices are a cause for concern as it costs around $67 per pound to produce, but mining companies can barely sell it for $40 a pound. This could lead to more mines shutting down, and bringing an inactive mine back online takes time.

However, countries like Japan and Germany cannot give up nuclear energy as coal is the only other option, and they claim to be fighting global warming. The fundamental perspective is compelling for companies such as CCJ, BHP, DNN, UEC, UUU etc.

Ability is of little account without opportunity.

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Reference

Uranium price is spiking – here’s why” (CNN Business). It explains that uranium prices have risen by more than 35% this year, driven by increased demand and concerns over supply shortages. It notes that several uranium mines have closed over the past few years due to low prices and that the global uranium market relies heavily on production from just a few countries. https://www.cnn.com/2021/05/18/investing/uranium-prices-surge-mining-stocks/index.html

“Uranium Is Poised to Take Off—And You Can Buy It Here” (Barron’s). This article argues that a “perfect storm” of factors, including growing demand for nuclear power, mine closures, and supply chain disruptions, will likely push uranium prices higher in the coming years. https://www.barrons.com/articles/uranium-is-poised-to-take-off-and-you-can-buy-it-here-51627482000

“Uranium price surge stokes interest in nuclear power” (Financial Times). It discusses the recent surge in “uranium price” and notes that some experts believe the market is “poised for a rebound” after years of low prices. It also highlights several factors driving demand for nuclear power, including efforts to reduce greenhouse gas emissions and the growing use of electric vehicles. https://www.ft.com/content/0de8e83c-6622-4945-bbce-0375a8a70f60

“Uranium Prices Surge as Investors Buy Physical” (The Wall Street Journal). It notes that uranium prices have jumped by more than 50% this year, partly driven by increasing demand from investors buying physical uranium to hedge against inflation. It also notes that supply shortages are a major concern in the market, with several mines closed due to low prices and others facing technical challenges. https://www.wsj.com/articles/uranium-prices-surge-as-investors-buy-physical-11632789919

“Why the uranium market is set to surge” (BBC News). It states that uranium is on the cusp of a major upswing, driven by growing demand for nuclear power and supply shortages caused by mine closures and production cuts. It notes that several uranium mining companies are ramping production in anticipation of higher prices and that investors are starting to take notice of the sector. https://www.bbc.com/news/business-58377845