Uranium prices have been struggling to climb out of a decade-long trough. Investors are asking, “When will the uranium price go up?”
Uranium is an important fuel source for the nuclear energy industry. But prices have bottomed out in the past decade, with many investors wondering when the market will rebound.
Driven by rising demand and massive supply disruptions, uranium prices shot up in 2007 from US$72 per pound at the start of the year to an all-time high of US$136.22 by early June.
However, in the years since then, the spot price for uranium has tracked downward on a steady slope. Since 2012, uranium prices have traded under the key US$50 level, reaching as low as US$18.
The consequences of an enduring low-price environment in the uranium industry have been significant curtailments in uranium production, as well as a dearth of new discoveries. Analysts and industry leaders say the uranium spot price needs to rise above US$50 before such activity becomes economical again.
The uranium market’s years-long trough has investors asking, “When will uranium prices go up?” Before we try to answer that question, we’ll have a look at what’s moved uranium spot prices in the past, including the energy metal’s supply and demand dynamics.
When will uranium prices go up? Historical price action
Uranium has experienced a wide price range this century — while its highest level was nearly US$140 the lowest U3O8 spot price came in at just US$7.
In 2003, the price of uranium began an upward trend as demand for nuclear power rose alongside the world’s need for energy, especially in growth economies such as China and India.
These increasing energy demands came at the same time as significant supply-side disruptions. In 2006, Cameco’s (TSX:CCO;NYSE:CCJ) massive Cigar Lake mine in Saskatchewan flooded, stalling production for several years at one of the largest undeveloped uranium deposits in the world.
The inability to move this uranium ore to market was a huge setback for the uranium industry, and translated into explosive price growth for the metal in 2007.
Uranium price chart via Trading Economics.
However, those impressive gains were soon undone by the 2008 economic crisis, which sent the uranium price on a downward spiral, slipping below the key US$50 level in early 2009. In 2010, uranium prices slipped further into the US$40 range.
In 2011, the price of uranium got a serious push to the upside along with other energy metals as the global economy began to recover. The tight supply situation, heightened by years of low prices, also played a part in pushing the spot price past the US$70 level.
After the 2011 Fukushima disaster, the uranium spot price began a slow slide to lows not seen since the start of the century, ultimately bottoming out at US$18 in November 2017. In the decade or so since then, uranium prices have struggled to breach the US$29 level.
In 2020, COVID-19-induced supply disruptions at the world’s top uranium mines briefly supported spot price gains of more than 30 percent in the first half of the year. The uranium price hit a four year high of US$33.93 in May; however, by mid-September, prices had pulled back to the US$29 level.
When will uranium prices go up? Supply and demand
Uranium prices are mainly influenced by aboveground mine supply and demand for nuclear energy. To understand where those stand, investors in this sector typically look to:
- output from uranium mines
- the number of nuclear reactors online, under construction or planned
- the signing of long-term contracts between uranium suppliers and utilities companies
Analysts with a bullish lean believe the uranium market cycle has reached its bottom and that a break to the upside for uranium prices is supported by positive supply and demand fundamentals.
On the supply side, major uranium producers are still cutting back on their output levels while new uranium exploration projects are few and far between.
Huge cuts to global uranium production have come from Kazakhstan, ranked as the world’s largest uranium-producing country. Responsible for 43 percent of global uranium production, the Central Asian nation began reducing its annual production levels in 2018 and plans to continue “flexing down” its uranium output through 2022.
Canada, Australia, Niger and Namibia are also among the world’s biggest uranium producers. In Canada, Cameco shuttered the Saskatchewan-based McArthur River mine in 2018 and temporarily closed Cigar Lake — the world’s top uranium mine — in response to the coronavirus pandemic.
In the second quarter of 2020, Philip Johnson of nuclear fuel cycle firm UxC forecasted a uranium production decline of 13.1 million pounds for the year.
On the demand side, nuclear energy generated from 440 reactors around the globe supplies about 10 percent of the world’s energy requirements. In terms of future demand for uranium, 53 nuclear reactors are in various stages of construction worldwide. China is constructing 11 of these new reactors, while 20 nuclear reactors are planned in Russia and India has 7 nuclear reactors under construction.
When will uranium prices go up? Future forecasts
So when can investors expect to see uranium prices go up? And when will the spot price for the metal once again move past the key US$50 level?
In January 2020, Rick Rule of Sprott (TSX:SII,NYSE:SII) told the Investing News Network (INN) that investors interested in uranium should be prepared to take the long position — in his opinion, it could be awhile before we see a rebound in the uranium market.
A true renaissance for uranium might be a few years off, but market participants are likely to see a series of incremental price increases along the way, Lobo Tiggre, founder and editor of Independent Speculator, explained to INN in an email. “I’m not ruling out more correction first,” he said. “If there’s no news or material change in the market, uranium prices could drift lower for months without breaking the multi-year upward pattern.”
The next such rise may come as early as the end of 2020, when major uranium companies like Kazatomprom and Cameco may make further purchases on the uranium spot market to fulfill their long-term contracts with utilities.
For example, in 2019 Cameco bought 12 million pounds from the spot market. With its production cuts in 2020, the company is expected to purchase an even greater amount of U3O8 at spot prices. Such actions are significant catalysts for upward movement in the uranium price.
Another big catalyst for uranium will be utilities companies coming back to market. Only about 10 to 15 percent of uranium trades happen on the spot market. The vast majority of uranium is sold through large long-term contracts between producers and utilities. UxC estimates that cumulative nuclear fuel requirements not covered by current contracts are about 1.5 billion pounds to the end of 2035.
“The longer the recovery of the long-term market is delayed, the less certainty there will be about the availability of future supply to fill growing demand,” as per an industry supply and demand report on Cameco’s website. “In fact, recent data from the US Energy Information Administration shows that utility inventories are starting to decline and are approaching levels that could put security of supply at risk.”
With uranium output in shortfall, utilities coming to market to replenish their energy fuel stock and secure future supply lines may happen sooner than later. “When that happens, miners will demand — and get — much higher long-term prices, which will drag spot prices up in response,” said Tiggre.
Nick Hodge of Digest Publishing agreed, saying, “If you are a fuel buyer for a utility company, you are probably starting to write memos to your boss like, ‘Hey sir, the price of uranium is up to the 2016 price already and that happened in a couple of weeks. We might want to start talking about contracting for uranium because our contracts roll off in X year.'”
Hodge expects to see higher prices for uranium in 2021, and thinks there is potential for the spot price to break past the all-important US$50 level. “I don’t know, do we get to US$50 this year? Everyone wants to know. Probably not, but I would say certainly in 2021.”
Raymond James forecasts that spot prices will average US$42.50 in 2021 and US$45 in 2022. The analyst firm anticipates that this growth will happen “as producers as well as utilities enter the market to purchase pounds as uncovered demand post-2021 grows.”
Still other uranium market watchers have cautioned that a near rebound in the uranium market is a tough call to make. Mercenary Geologist Mickey Fulp has advised, “Not even insiders have an idea of when this is going to turn because the market is so opaque.”
Do you think the uranium price is poised for a rebound? Let us know in the comments below.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Melissa Pistilli, 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.