U3O8 spot prices hovered around US$21 in Q3, but market watchers believe a rise is inevitable. Here’s an overview of the period, plus a look at what’s next.
U3O8 spot prices continued a long-running downward trend in Q1. Prices were at US$21.30 per pound as of March 26, down 4.5 percent month-on-month.
Prices were also down 10.5 percent on a year-to-date basis.
Meanwhile, long-term U3O8 prices remained flat in January, and were sitting at US$30 in February.
Even so, many market watchers believe that the path to higher uranium prices is already in place. Read on to learn more about what happened to uranium in Q1 2018 and what may be coming as Q2 approaches.
U3O8 price update: Supply
In 2017, persistently low U3O8 prices prompted a number of high-profile supply cuts. Kazakhstan said at the beginning of the year that it would reduce its uranium output for the year by 2,000 tonnes, sparking a brief price spike.
Then, toward the end of the year, major uranium producer Cameco (TSX:CCO,NYSE:CCJ) announced plans to suspend production at its McArthur River mine and Key Lake milling operations by the end of January 2018. Kazatomprom followed with another announcement, saying it would reduce its output by 20 percent over the next three years.
Those moves sparked optimism, but as can be seen prices have yet to be significantly affected by reduced supply. Nevertheless, experts agree that it’s only a matter of time before the market turns.
For example, Ross McElroy, president and COO of Fission Uranium (TSX:FCU), commented in March that as low-cost producers like Cameco dial back on production, the uranium market is being set up in a way that will “force the price of the commodity higher.” He added, “we’ll be able to get more uranium in there to continue to feed the reactors.”
The Stock Catalyst Report’s Mike Alkin also sees Cameco’s simmer on production as a positive for U3O8 supply and pricing. He commented in January that “it should have a great effect because McArthur River is the largest producing mine in the world … primary mine supply is already in a deficit. The market is filled by secondary supply. So this just exacerbates that down, that power pressure on supply.”
Nick Hodge of the Outsider Club made a similar statement earlier this year, noting that secondary supply is being taken out, and “now the mines have got to make up the difference. That’s really what we as investors have been waiting for — because there’s a lot of uranium in the world, there’s just not a lot of uranium mines.”
U3O8 price update: Demand
Demand for uranium is expected to rise as excess supply starts to come off the market. In fact, according to a report from the World Nuclear Association, there are currently 447 reactors in operation worldwide and an additional 61 in construction.
Overall it has been forecast that uranium demand could grow nearly 60 percent to more than 300 million pounds by 2030, up from 190.2 million pounds in 2016. The consensus seems to be that China and India are the places to watch in terms of demand.
According to analysts at FocusEconomics, “[t]he Indian government announced on March 7 that the country is planning a tenfold increase in uranium production over the next 15 years. The same day, the Chinese government announced that China intends to bring five new nuclear power plants online this year, which should support uranium demand.”
Similarly, McElroy commented, “China is the biggest story out there where they’re continuing to put new reactors on the grid. They’re building I think at a rate at around eight to 10 new reactors a year. We’ll see them become one of the largest consumers of nuclear fuel — uranium. Probably 15 years from now, they’ll be the largest single country out there using nuclear power.”
Japan could also be an area to keep an eye on. As Rick Rule of Sprott US Holdings said earlier this year, “the determinate as to whether 2018 is the year that uranium really moves will be made by the pace of Japanese reactor restarts.”
U3O8 price update: What’s ahead?
Diverse analysts believe uranium is set to see increases in price and demand, and ultimately supply. Both the Indian and Chinese governments have announced that they will be increasing their uranium production, and countries such as China and India have witnessed an uptick in demand. These increases in demand are expected to add upward pressure to prices in the coming years.
FocusEconomics analysts project prices will average US$26.3 in Q4 2018 and US$31 in Q4 2019.
For his part, Rule put into words what many believe about the uranium space, saying that it’s “a when market — there’s no doubt it’s going to happen.” He believes investors should “not worry so much about uranium as worry about your own reaction to the market and determine whether you do or do not … have the mental discipline to stand volatility.”
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.