U3O8 spot prices experienced growth in Q2, reversing a downward trend experienced in late 2017 and early 2018. Prices were at US$22.80 per pound as of June 30, up slightly from US$22.62 month-on-month, however during the quarter prices were up by as much as 15 percent.
Despite improvement in the month over month trend, U308 was down 3.10 percent on a year-to-date basis.
Meanwhile, long-term U3O8 prices were down 3.33 percent for the quarter, sitting at US$29 in June.
Although uranium didn’t’ experience significant growth during the second quarter of 2018, market watchers believe the path to higher uranium prices is inevitable as more countries build, restart and work to integrate nuclear energy into their power grids. Read on to learn more about what happened to uranium in Q2 2018 and what may be coming as we enter the second half of the year.
U3O8 price update: Supply
U308 production continued to decrease in Q2 driven by supply cuts that came as a result of low uranium prices. Kazakhstan and Canada, two of the leading U308 producers, both made drastic production cuts in late 2017 to early 2018.
Canadian producer Cameco (TSX:CCO,NYSE:CCJ) announced in late January it was going ahead with a temporary shuttering and production halt at its McArthur River mine and Key Lake milling operations. Cameco expects the temporary closure to last approximately 10 months with the 28 to 30 million pounds in committed sales volume coming from the company’s current inventory.
“With the continued state of oversupply in the uranium market and no expectation of change on the immediate horizon, it does not make economic sense for us to continue producing at McArthur River and Key Lake when we are holding a large inventory, or paying dividends out of proportion with our earnings,” Tim Gitzel, Cameco’s president and CEO wrote in a press release.
This follows an announced 20-percent reduction in production over three years by Kazatomprom, Kazakhstan’s premiere mining company and the world’s largest uranium supplier.
The sentiment of Cameco was reiterated by the International Atomic Energy Agency (IAEA).
“Over the past few years a surplus of inventory of uranium ore concentrate has developed, leading to lower prices. This is a result of a combination of increased production and reduced demand,” said Brett Moldovan, uranium production specialist at the IAEA. “Operating many of the mines under the current price for uranium is a challenge economically.”
Increased demand over the next decade will likely drive prices higher, which could entice uranium miners to commission new projects.
Mickey Fulp of Mercenary Geologist believes there are several catalysts behind uranium’s positive Q2 movements. The most prevalent being an additional production cut in Kazakhstan, reducing production from 64.5 million pounds to 56 million pounds this year. He also noted a 600,000 pound purchase made by utility companies as contributing to the price increase.
According to Fulp, it’s only a matter of time until utility companies stop picking at the spot market and start looking to long term miners.
“Whenever that happens we expect uranium to have another boom; it’s a boom and bust commodity,” said Fulp. “When that’s going to happen, no one, not even insiders have an idea of when this is going to turn because the market is so opaque.”
U3O8 price update: Demand
Uranium prices have dropped by more than 70 percent since March 2011, when the Fukushima earthquake and subsequent meltdown occurred. Four of the countries 54 nuclear reactors were directly affected, while the country vowed to shut down its remaining 50 reactors.
With the expectation that Japan would take all its reactors offline, uranium demand weakened and the price continued to fall.
Fast forward seven years later and Japan has changed its tune saying “the country cannot live without nuclear power,” and has since begun the restart process at a variety of sites. As of July 6, 2018 Japan had received approval from the Nuclear Regulation Authority (NRA) to restart 15 of the shuttered reactors, with six already up and running.
Almost simultaneously, Japan announced plans to supply 22-24 percent of its power grid through renewable sources by 2030; with an additional 20+ percent of energy being provided through nuclear.
There are currently 451 nuclear reactors generating power in some 30 countries around the globe with an additional 58 under construction. As these reactors are continuously brought online U308 demand is expected to surge.
The IAEA predicts world energy consumption to increase 18 percent by 2030 and 39 percent by 2050. According to IAEA estimates, we can also expect a 42 percent increase in nuclear electrical generation capacity by 2030 and 123 percent increase by 2050.
Fulp sees recent developments in the US as an additional catalysts to increased demand.
“[President] Trump about a month ago, because of National security issues, signed an executive order requiring utilities to buy electricity from both nuclear power plants and coal power plants in order to keep some of these things open and not have everything converted to natural gas,” said Fulp.
Trump may have been motivated by a petition launched by two of the country’s uranium producers. In January, Energy Fuels (TSX:EFR) and UR Energy (TSX:URE), the two leading uranium companies in the US, filed a section 232 request with the Department of Commerce, asking for an investigation into the national security around uranium.
The two U308 miners want the country to review its dependence on foreign countries for uranium, and instead source as much as 25 percent of the country’s uranium from domestic producers.
Currently, America imports 40 percent of its uranium from state-owned and state-subsidized enterprises in Russia, Kazakhstan, and Uzbekistan. Uranium produced in the US only accounts for less than 5 percent of supply.
If Energy Fuels and UR Energy are successful, production in North America, particularly in the US, could double.
As Fulp noted, this is the type of development that could drive spot prices above US$40, which in turn would entice uranium miners like Uranium Energy Corp. (NYSEAMERCIAN:UEC) to commence production at its ready to go sites.
U3O8 price update: What’s ahead?
Looking ahead it’s almost inevitable that there will be a global production increase, however it may not come from the countries known as top producers, like Canada and Kazakhstan; and instead may come from the US.
Last month, the Department of Energy (DOE) announced plans to invest US$64 million in 89 advanced nuclear projects underway in 29 states.
Just days later, the Federal Budget numbers for 2019 were released, which earmarked US$1.2 billion to the DOE to support the existing fleet and advanced reactors.
“The legislation passed today offers significant support for continued development of accident tolerant fuel, advanced reactor technologies, and fuel for advanced reactors,” Maria Korsnick, President and CEO of the Nuclear Energy Institute said in an announcement.
“Investment in nuclear energy technologies like this will deliver enormous benefits to our energy system, our environment, our workers and our national security.”
Is now is the time for investors to buy stocks in U308 miners?
“I have no idea, the uranium market is always throwing us surprises,” said Fulp. “I can tell you what I would do; I am a contrarian, I buy things and wait.”
Spot prices are expected to hit US$37.50 by December 2018, and the long term price is pegged to reach US$44.50 by year’s end, according to Sightline.
Source: Investing News Network