Just like many commodities, there have been bullish and bearish periods for uranium. However, since hitting a peak of over US$140/lb in June 2007, the intervening period can generally be regarded as a prolonged bear market for the yellow metal.
There have been a few periods of optimism, such as when in 2010/11 the price rose from around US$36/lb all the way up to US$72/lb. However, many of these rallies were short, with the price quickly retreating south.
This makes the recent run all the more interesting as it’s not just normal supply and demand economics at play this time around.
Since bottoming out at around US$18/lb, the uranium price has been inching its way higher, albeit with a few bumps along the way. This week, the price hit a 12-month high of US$57.75/lb, a cause for celebration as it moves towards the 10-year high level of US$64.50/lb.
Supply and demand definitely have a role in the current strength of the uranium price. More countries are looking for ex-Russia sources of supply, putting additional demand into the market that is already experiencing increased demand from China’s expanding domestic nuclear power industry.
The interesting part is the impact that financial speculators and physical uranium ETFs are having on the market. It’s nearly a self-fulfilling prophecy that as the market strengthens, more investors are coming into the market, increasing the physical uranium stockpiles held by ETFs and other funds, reducing the supply for power users and further increasing the price.
The Sprott Physical Uranium Trust (UU.TO) was launched in 2021 to buy up uranium on the spot market, taking volumes out of circulation. The Trust is currently worth US$3.15 billion, up 44% since its launch.
When the fund trades at a premium relative to its net asset value, it can issue new shares and then use the proceeds to purchase uranium. When it trades at a discount, however, this option is not available.
“Speculators will eventually realise they can bull the Sprott Physical Uranium Trust, force a premium, have the trust issue shares, and permanently sequester physical material,” New York Fund Manager Goehring and Rozencwajg said in a paper published at the end of May.
Further strengthening the sector is the impact of Government intervention. The uranium sector received a significant boost when the US managed to avert a debt ceiling crisis, which could have jeopardised the provisions laid out in the Inflation Reduction Act (IRA).
The IRA assigned $700m towards the development of a domestic high-assay low-enriched uranium (HALEU) supply chain. According to the Office of Nuclear Energy in the US, the development of a HALEU supply chain “is urgently needed to support the deployment of advanced reactors”.
Advanced Small Modular Reactors (SMRs) are a key part of the US’s goal to develop safe, clean, and affordable nuclear power options. The advanced SMRs currently under development in the United States represent a variety of sizes, technology options, capabilities, and deployment scenarios. These advanced reactors, envisioned to vary in size from tens of megawatts up to hundreds of megawatts, can be used for power generation, process heat, desalination, or other industrial uses.
In mid-2022, the US Office of Nuclear Energy approved the first SMR design, by US company NuScale Power Reactors, with a 12-module plant to be constructed in Idaho.
In May this year, Westinghouse unveiled plans for the AP300, a 300MW capacity plant that is a scaled down version of its AP1000 plants that are operational in China. With a price tag of around US$1 billion, it is likely that Government assistance will be required to get projects like this off the ground.
Many uranium miners have stated that a floor price of US$70/lb is required to invest in new capacity. With a supply deficit that doesn’t look like it is easing, new demand from large Chinese plants and newer SMRs as well as increased financial market speculators soaking up stockpiles, the sector is looking as good as it has for the past decade.
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Photo credit: Photo by Nicolas HIPPERT