Uranium had been sitting at historic lows for most of the last decade, but as demand and sentiment surrounding uranium turned around slowly, prices have begun to turn around. Prices have risen by 40% in the month of September alone, overtaking all other major commodities. A few weeks ago, millions of pounds of supplies were scooped up by the Sprott Physical Uranium Trust. That deal alone was enough to push prices significantly higher in a single day and put the uranium story on the map of every miner, trader, and refiner.
Uranium has gotten somewhat of a bad reputation after a series of disasters at multiple reactors. The visuals of those accidents were enough to turn people off from the idea of having a reactor near their town or home. However, the price changes happening now show that buyers are ready and the industry might be set for a resurgence.
Barriers for Uranium Not Insignificant
It’s a massive bet on the importance of nuclear power in a carbon-free future. The problem, at least for investors who have pumped hundreds of millions and in some cases billions of dollars into this bet, is that a debate is raging over whether nuclear power should return to the forefront. Nuclear energy has been taboo since the Fukushima disaster in Japan, and the 2011 meltdown and recent accidents show that reactors are too dangerous for some people to stomach. And because nuclear power is carbon-free, it has attracted opposition from progressives and environmentalists who have concerns about radioactive waste.
According to Chris Gadomski, a leading nuclear analyst at Bloomberg NEF, only 50 reactors are under construction, a 20-year low. Still, in his view, there is nothing overdone about the uranium rally.
Producer stocks were in a frenzy that now seems to have peaked. Cameco Corp. fell more than 13% after hitting a 10-year high last week. Exploding uranium prices now seem to have hit the brakes. Futures trading in New York fell as much as 9.8% on Tuesday before ending losses and closing the day at $49.75 a pound, 0.3% lower than that.
Kazatomprom, the world’s largest uranium producer, warned that recent price moves have fueled financial investors in utilities that use the radioactive metal as fuel for their reactors. There is also speculation about a new Sprott Physical Uranium Trust and what it might do next after its aggressive move several weeks ago.
Nuclear power has always been controversial, but the debate has never been more polarized. Uranium skeptics tend to agree that nuclear power will account for a larger share of electricity generation if global governments implement their ambitious plans to wean themselves off fossil fuels. Supporters anticipate a nuclear fission renaissance that could mobilize $5.9 trillion in global investment by 2050 — the year dozens of nations, including the US — aim for net-zero economies.
A Viable Option
Worldwide, awareness is growing that the closure of coal and natural gas-fired power plants is leading to blackouts. Dependence on wind, solar and hydropower is proving cumbersome, as evidenced by the constant threat of blackouts in California and rising energy prices in Europe. This is where the promise of nuclear power, with its round-the-clock carbon-free electricity, comes in.
To unlock this potential, Sprott Fund has been buying uranium daily. The pace of its purchases has changed and is now a regular occurrence on the open market, contributing to price swings. The surge in demand comes at a time of historically low prices as pandemic mine disruptions prompted uranium producers, including Cameco, to buy more in the market to fulfill their long-term contracts with consumers. That helped push uranium futures up to $50.80 last week, the highest level since 2012.
In fact, Sprott’s purchase has eliminated inventories that have been hanging on the market since Fukushima and led to the shutdown of most of Japan’s nuclear reactors. Disasters such as Fukushima and accidents such as Chernobyl and Three Mile Island have made nuclear power look suspicious for years.
From East to West
But some governments are rethinking that approach. Illinois Governor J.B. Pritzker signed a sweeping climate change bill this month that subsidises Exelon Corp with $700 million over five years, prompting the company to change course and keep two nuclear power plants in the state alive. According to the China Nuclear Energy Association, the short-term objective in China is to approve six to eight new reactors a year by 2025, with 70 gigawatts in operation and 40 more under construction.
And in Japan, nuclear power is slowly returning. So far, Japan has restarted one-third of its 33 operational reactors under Fukushima safety regulations, with the remainder to be restarted by 2030. Taro Kono, the minister of administrative reform who has emerged as a leading candidate to succeed Prime Minister Yoshihide Suga, has said that nuclear power will be necessary to some extent if the country is to meet its pollution-reduction targets.
That is not to say that this will not be an uphill battle. Some nations are turning to nuclear power again, while others are phasing out nuclear power. Germany, for example, will shut down its last reactor this year.
Better, Safer Tech, and a Quiet Uranium Revolution
At the same time, the future of nuclear power is fueled by a new generation of smaller reactors that are expected to be faster and cheaper. They will need less uranium than the huge conventional plants currently in operation and have the potential to dampen the commodity market. But it will take at least a decade to get them up and running. In the meantime, the big question is whether investors’ gains in demand will be enough to support the market.
All the right pieces are in place for the next part of the cycle. It is possible that the recovery in the spot market could be a catalyst to encourage more utilities to get involved and sign long-term contracts. That would not only change the future of the uranium market and industry, but the energy industry around the world.