U3O8 Price Update: Q3 2020 in Review

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The U3O8 spot price continued to trend lower in Q3, but remained above the US$24.63 per pound value it was sitting at in January. After hitting a four year high of US$33.93 in May, lower demand has pushed the commodity down later in the year.

A decline in industrial and commercial electricity demand began during June, and was further compounded by the amount of U3O8 already available in the market.

Both factors led to a slightly lower price in July and added headwinds throughout the Q3 period. Keep reading to learn what events have contributed to the U3O8 spot price’s movement so far in 2020.

U3O8 price update: Price reacts to demand

Much of uranium’s price rise from February to May was the result of COVID-19 lockdowns and restrictions in key production countries like Canada and Kazakhstan. Majors like Cameco (TSX:CCO,NYSE:CCJ) and Kazatomprom curtailed production in the spring, then looked to the spot market to meet their contractual obligations.

“The coronavirus (COVID-19) pandemic has had a significant impact on people and the economy around the world,” Tim Gitzel, Cameco’s president and CEO, wrote in a July announcement.

“Cameco too has felt the impact with the proactive shutdown of our operations resulting in an additional C$37 million in care and maintenance costs and an increased reliance on the spot market for uranium supply, which are reflected in our results.”

The third quarter of 2020 started with the U3O8 spot price 31 percent higher than January’s US$24.63 level; meanwhile, July’s US$32.45 was slightly off the year-to-date high set in May.

Even in March, when markets and commodities like gold, silver and copper dipped dramatically, U3O8 was able to edge higher due to concerns that a potential shortage could impact electricity generation.

There has been speculation for more than a year that utilities companies will soon need to enter new contracts for U3O8 supply, but because the sector remains notoriously opaque it is unclear to market watchers when these companies will sign deals.

August saw the U3O8 spot price slide below US$32 for the first time since March. Headwinds persisted into September, with the energy fuel closing the three month period below US$30 to sit at US$29.93.

Cameco was expected to restart production at its Cigar Lake mine ― its primary and top-producing asset ― in September, although there has not been an official announcement about resuming activity.

When asked if Cameco’s restart could have weighed on the spot price, Independent Speculator Lobo Tiggre noted it was likely not a factor.

“The restart is at Cigar Lake only, with McArthur River still offline, and it only started a couple weeks ago,” said the CEO of Louis James. “I think the price just rallied a bit too enthusiastically ― as it always seems to. It’s now paused for consolidation, which is normal. The series of higher highs and higher lows we’ve seen over the last few years continues.”

U3O8 price update: Declines in global energy investment

Despite facing declines in Q3, the U3O8 spot price continued to trade 21 percent higher than January’s value. 2020 is also likely to be the second year in a row that electricity generated by renewable and nuclear energy surpasses electricity made by coal.

While that bodes well for the industry as a whole, there are challenges ahead. The first being a broad 20 percent drop in energy investment globally in 2020.

According to the International Energy Agency (IEA), this will be further compounded by a 5 percent decrease in demand across the board.

“Electricity demand has been depressed by 20 percent or more during periods of full lockdown in several countries, as upticks for residential demand are far outweighed by reductions in commercial and industrial operations,” reads the IEA’s global energy review.

“Demand reductions have lifted the share of renewables in the electricity supply, as their output is largely unaffected by demand. Demand has fallen for all other sources of electricity, including coal, gas and nuclear power,” the document also states.

U3O8 price update: Voters choosing the future of energy

Another factor that will shape the energy sector and by extension the uranium space is the US election. Both presidential candidates are on record as supporting nuclear energy as a clean energy alternative. However, the history of nuclear energy still makes it a tough political pill to swallow.

“Nuclear is a big, big, big part of the future energy mix of the world. But the US in particular, the west in general, has talked itself out of nuclear power to a very dangerous degree,” said Byron King, editor of Whiskey and Gunpowder at Agora Financial.

While no new nuclear plants were commissioned during US President Donald Trump’s first term, he did support a Section 232 investigation into the safety of foreign uranium imports. He also subsequently proposed a US$1.5 billion U3O8 stockpile (US$150 million annually for 10 years), although it still needs to be voted on by Congress.

However, as King pointed out, even if that is approved there would be challenges because the US currently produces “zero percent of the uranium it consumes for both commercial and naval nuclear.”

Regardless, he believes the small steps Trump has made in terms of nuclear dwarf any moves the Democrats would make if elected.

“(Are Joe Biden/Kamala Harris) going to be out there banging the drum promoting the US uranium industry?” he said. “I rather doubt it. That just doesn’t seem to be (part of) the green New Deal agenda.”

Combating the second wave of COVID-19, doling out stimulus and reviving the economy will likely be the most pressing issues at hand for whoever wins. That said, the US is a top producer of oil, a sector that has faced enormous headwinds this year, meaning that energy will be an important issue as well.

If there was a significant uptick in global uranium demand, the US is positioned to ramp up production if the price is right, according to Brent Cook of Exploration Insights.

“It’s actually a lot easier in the US because we’ve got a lot of uranium mines that are permitted and built, they just don’t have the price that they can make money at,” he said. “So if we suddenly saw US$60 uranium, I guarantee you there’s going to be half a dozen or a dozen mines that are going to be raising money to production.”

U3O8 price update: Where are prices headed?

As of October 26, the U3O8 spot price was down 12.9 percent from the US$33.90 high it set in May. That said, values remain 19.9 percent higher than January.

The higher price environment seen through the pandemic could indicate a new threshold for uranium, especially if green energy plans continue to incorporate nuclear in electricity generation.

As the IEA has explained, “For example, an infrastructure spending package of US$1.5 trillion was proposed in the United States in July 2020, which includes over US$70 billion to modernize and extend electricity grid infrastructure to support the deployment of renewables and stimulate the economy.”

Similar trillion-dollar infrastructure overhauls have been proposed by the European Commission, as well as the State Grid Corporation of China.

Market watchers may need to wait until 2021 to see how beneficial these proposals are to the uranium price, but Tiggre doesn’t expect U3O8 to slip further.

“Anything is possible, but no, I don’t expect much lower prices ahead,” he said.

“They may continue to lose some altitude until the next market-moving news shoots them higher, but the length of time prices have remained around US$30 tells me that excess secondary supply is no longer a big threat. I think the next big move is likely higher, not lower.”

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Securities Disclosure: I, Georgia Williams, 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.