Uranium is an important fuel source for the nuclear energy industry, but many investors were shaken out of the market after many years of low uranium prices. Now that a rebound is underway, many wonder if the commodity will once again reach its peak.
Although prices have since pulled back to the US$90 range as of mid-year, there are plenty of signals that the market may be in for plenty of upside in the years ahead.
For many years, the uranium market’s back-and-forth struggle to move out of a rather entrenched trough had investors asking, “When will uranium prices go up?” Now that they have, the questions that remain are whether they are up enough to spur uranium mining activity and whether or not they have further to go.
Before we try to answer those questions, we’ll have a look at what’s moved the uranium spot price in the past, including the energy metal’s supply and demand dynamics.
As briefly outlined above, uranium has experienced a wide price range this past 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. For example, in 2006, Cameco’s massive Cigar Lake mine in Saskatchewan flooded, stalling production for several years at one of the largest uranium deposits in the world.
At the start of 2011, 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.
The rally was short-lived, however, as Japan’s Fukushima nuclear disaster in March shook confidence in the sector. 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.
Looking at the demand side, utility companies had once again returned to the table to sign new long-term uranium supply agreements to secure price and supply. This coincided with uranium supply challenges related to conversion and enrichment. The result was that from April 2021 to April 2022, the price of uranium soared by an eye-popping 106.47 percent.
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:
Despite this positive news, the WNA reports that supply deficits are likely to continue in the years ahead as current global production levels are not enough to meet forecasted demand.
So when can investors expect to see further gains in the uranium price? And how far can we expect uranium spot prices to climb?
A good gauge for where the winds are blowing is utilities contracts, as these entities are traditionally the greatest sources of uranium demand. In fact, 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.
“I think that we’re going to start to see a move much higher both in terms of term volume and in terms of term prices,” he said. “Fuel buyers have got the clarity that they need, particularly in the west now, on the US’ stance on the future procurement of Russian uranium.”
Watch the video below to learn more about how Finegold sees this move as an incentive for US uranium mining and fuel cycle investment.
Even though uranium spot prices are elevated at around the US$90 level, Finegold remains bullish on the market going forward and thinks higher prices could be in the cards. He sees the price floor for spot uranium at around US$85 per pound and around US$75 to US$80 per pound for term prices.
“The price environment is incredibly supportive for investors at these levels,” Finegold said. In terms of exactly how high uranium prices could get this year, he expects prices to surpass the US$106 mark reached in January.
This is an updated version of an article first published by the Investing News Network in 2020.
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.
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