Uranium Price 2022 Year-End Review
Uranium faced some price constraints in 2022, but it remains in bull market territory. Find out what factors impacted the energy fuel this year.
After climbing 41 percent in 2021, uranium's rise was more muted this year. The energy fuel is set to end the year just 9.94 percent higher than its January start, but has still done well amid global economic turmoil and geopolitical strife.
Potential supply challenges related to conversion and enrichment added tailwinds to the market early in the year, propeling uranium prices to an 11 year high of US$64.47 per pound in April. Efforts to tame inflation eroded some of uranium’s value as the first half of the year neared its end, and prices slipped to US$46.92 at the end of May.
Positive fundamentals around the need for nuclear energy prevented uranium from falling below US$48 from June through December. Read on for more details on the commodity's quarter-by-quarter performance in 2022.
Uranium price in Q1: Geopolitical instability a key driver
The year started with U3O8 trading for US$43.66 as leading uranium producer Kazakhstan faced civil unrest — protesters in the country took to the streets to voice their displeasure about issues such as energy costs.
By February 9, prices had fallen to US$43.15, their lowest point in 2022. However, Russia's late February invasion of Ukraine served as a growth catalyst, sending uranium values above US$50 by the beginning of March.
As tensions continued to intensify between Russia and Ukraine, concerns over the future of Russia’s role in the conversion and enrichment segment of the nuclear fuel cycle increased.
According to UxC, prices for conversion jumped from US$15 per kilogram of uranium to US$40, where they continue to hold.
“Conversion supply has become extremely tight and is expected to remain vulnerable to supply shocks over the next decade as production capacity has been reduced while demand is growing due to shifts in enricher tails assays,” UxC explains in a note.
The overview also points to several factors that could drive the market to unprecedented levels.
“Multiple issues have affected the supply side of the equation in recent years, including Honeywell's decision in 2017 to shutter its Metropolis conversion plant until 2023, Orano's delayed transition to its new COMURHEX II facilities, as well as impacts from Russia's invasion of Ukraine,” it reads. “As a result, prices for conversion services have risen to historical highs as of 2022.”
Before Q1 ended, U3O8 had broken past the US$60 mark for the first time since 2011.
Uranium price in Q2: Energy security comes into focus
The second quarter of the year saw uranium make its most pronounced price jump, adding 49 percent from its February low to an 11 year high of US$64.50 in April. The market continued to find support from the conflict in Ukraine, along with global efforts to combat rising greenhouse gas emissions.
U3O8's price performance year-to-date.
Chart via TradingEconomics.
Russia is responsible for 43 percent of global uranium enrichment capacity, and enrichment is a critical step in producing the material needed to feed nuclear reactors and generate electricity.
“Essentially, as the world is trying to pivot away and punish Russia for its invasion of Ukraine, western utilities are trying to figure out how to secure alternative supply, and this is causing a real pinch point,” John Ciampaglia, CEO of Sprott Asset Management, said during his keynote address at a summer uranium conference held by Red Cloud Financial Services.
The transition away from Russian enrichment may be easier said than done as Russia also possesses the largest share — roughly 40 percent — of the world’s conversion infrastructure.
The US, the world’s largest purchaser of uranium for nuclear reactors, relies on Russia for 20 percent of its converted uranium. Eradicating Russian supply from America has an estimated cost of over US$1 billion and would take time to come to fruition.
Domestically, the country has one conversion facility, Honeywell's Metropolis plant in Illinois, which was shuttered in 2017. In early 2021, Honeywell announced plans to restart the plant amid rising conversion prices.
Metropolis is scheduled to commence conversion in 2023.
Uranium prices ended the first half of 2022 in the US$50 range, a 13 percent uptick from January.
Uranium price in Q3: Sprott trust continues buying
Q3 saw the Sprott Physical Uranium Trust (SPUT) (TSX:U.UN,TSX:U.U) continue to amass pounds of U3O8.
“SPUT purchased more than 24 million pounds U3O8 in 2021, or about 25 percent of all spot purchases,” a UxC report states. “Through August 2022, the Trust has purchased an additional 16 million pounds U3O8 in the market.”
Currently, SPUT holds 59,269,000 pounds of U3O8 valued at US$2.84 billion.
By early September, the uranium prices were as high as US$53.63, their top H2 level. Pressure from the US Federal Reserve’s response to skyrocketing inflation kept most markets from making any meaningful gains in the fall.
A strong US dollar also impeded growth across all markets.
“For uranium, the U3O8 spot price fell 8.66 percent in September, physical uranium's largest monthly decline since March 2019,” wrote Jacob White, senior analyst at Sprott Asset Management. “Uranium miners followed suit, losing 16.17 percent, posting their worst monthly performance since the inception of the North Shore Global Uranium Mining Index in June 2017.”
Despite the poor September performance, the value of U3O8 remained above US$48 through October before rallying back to the US$53 threshold at the end of the month. The energy fuel’s resilience amid broad headwinds “belies the strong fundamentals of uranium markets," according to White.
“Year-to-date as of September 30, U3O8 conversion and enriched uranium prices have all significantly appreciated for both short- and long-term purchase contracts,” White wrote. In his opinion, the market is at a flux point.
“We believe that the current demand for uranium conversion and enrichment, coupled with a shift away from Russian suppliers, supports higher U3O8 uranium spot prices, ultimately benefiting uranium miners,” he said.
Although the current macroeconomic environment is adverse, Sprott Asset Management believes the “uranium bull market remains intact" and on track for continued growth. Future catalysts include the switch to green energy, the need for energy security and the proliferation of new nuclear reactor builds.
“Over the long term, increased demand in the face of an uncertain uranium supply will likely support a sustained bull market,” added White. “For investors, uranium miners have historically exhibited low/moderate correlation to many major asset classes, potentially providing portfolio diversification.”
Uranium price in Q4: Attitudes toward nuclear improve
The last quarter of 2022 began with U3O8 maintaining its US$48 price point. This level also seems to signify the new bottom for the market as values have remained at or above the threshold since July.
The spot price endured some volatility due to the Fed’s interest rate hiking regime, as well as strength in the US dollar, which hit a 20 year high and held in that territory through the penultimate month of the year.
On the flip side, prices benefited from positive attitudes toward nuclear energy at the United Nations' COP27 conference. While nuclear energy was formerly excluded from discourse around clean and green energy, this year’s conference included the importance of nuclear for attaining global emissions-reduction goals.
The event culminated in the global nuclear industry releasing a joint statement urging “decision makers to acknowledge and support the need for increased nuclear energy generation.” The group also called for more investment across the sector for new nuclear builds and the advancement of nuclear innovation.
“Nuclear energy has the highest capacity factor versus traditional and alternative energy sources and can complement renewable energy sources’ intermittency with reliable baseload power,” Sprott Asset Management’s White wrote in a December note.
As of December 19, U3O8 was priced at US$48.10.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
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