There’s been growing talk around uranium and its potential for a comeback. Over the last month and a half, uranium spot prices have been balancing around a two-and-a-half-year high, rising by 30% from April according to the Financial Times report.
Changes from some of uranium’s largest producers have been a major driver behind the price rise. But that could soon be set to reverse.
The spot price of uranium of September was US$27.50, which is up 25% since January’s spot price of US$21.88.
Uranium prices set to exceed average sales
It seems that uranium is returning to health after suffering weak demand in the wake of Japan’s Fukushima accident in 2011.
Although the biggest news surrounding uranium prices seemed to be at odds with one another — on one side Kazakhstan’s state-owned mining giant announced plans, while Spain is set to block a Berkeley Uranium mine project.
It’s a huge setback for Australian mining company Berkeley, who will bear the brunt of impacts from the Spanish government’s refusal to give permits to the European Union’s only open-cast mine.
Despite being granted preliminary approval back in early 2013, it has faced opposition. In order for the mine to be operational, Berkeley must wait until nuclear authority release its report.
According to CNBC, a government source said, ‘the authorisation to build the mine is only possible when the nuclear authority has handed over its report, which is still a long way’.
While this is bad for Berkeley it could mean big things for the price of uranium, as it restricts supply. This means demand will be fraught with little inventory.
Further restricting supply, a neighbouring mine to the proposed one recently closed after failing to create a profit.
The main driver for price increases, and what is expected to keep driving uranium prices upward, is the contraction in production in major producers. This was true for Kazatomprom, at least.
Kazatomprom is the world’s largest producer of uranium, and since last year they cut their output by 10%. In the same period they also contracted output by 20% in a bid to help increase prices.
Last month, company chairman Galymzhan Pirmatov announced this year’s uranium sales would exceed the average of the last three years at Kazatomproms.
‘We have carefully analyzed the current situation in the world nuclear industry and adopted a new development strategy. During 2017 and [eight] months of this year, the company has attained all of its output and financial targets. It is expected that this year the dividend payout will more than double as compared to the previous year.’
This could put downward pressure on uranium’s spot price.
This also came with reports around the same period that Kazatomprom has been upping their production by 15.4% every year. What is being described as an aggressive production-focused approach has caused some privately owned market peers to not greet Kazatomprom efforts with positivity.
What to look forward to in uranium prices
This year and into the next, investors can look forward to the continued rallying of uranium’s price. This is largely helped by what we have discussed earlier.
While we cannot speak for the future in any real certainty, what we can say is that the market is indicating restored confidence in the demand for uranium, which is greatly in line with 2019 forecasts.
Source: Money Morning