After remaining at all-time lows for most of the last decade, uranium suddenly returned from the dead.
Prices rose about 40% in September alone, outperforming all other major commodities. In just a few weeks, the Sprott Physical Uranium Trust raised millions of pounds in supplies. It’s a massive bet on the importance of nuclear energy in a carbon-free future. The problem is – at least for those investors who have put more than $ 240 million in the fund – the debate about whether and how nuclear power can come to the fore is still raging.
Atomic energy became somewhat of a taboo in Japan after the Fukushima disaster. Opponents said the 2011 meltdown was just the latest accident to show reactors were too dangerous. And while nuclear power is carbon-free, it has drawn opposition from some progressives and environmentalists who have concerns about radioactive waste. There are currently only 51 reactors under construction worldwide, the fewest since 2008, according to Chris Gadomski, senior nuclear analyst at BloombergNEF.
Gadomski’s view of the red-hot uranium rally? “Everyone is played,” he said.
As fast as uranium skyrocketed, prices now seem to be putting the brakes on. Futures traded in New York on Tuesday fell as much as 9.8% before reducing losses and closing the day 0.3% lower at $ 49.75 a pound.
Producer inventories, carried away by the frenzy, appear to have peaked. Cameco Corp. has fallen more than 13% since hitting a decade high last week. And the world’s leading uranium mining company Kazatomprom has warned that the recent price action was fueled by financial investors, not the utility companies using the radioactive metal as fuel in their reactors.
Speculation was fueled by the new Sprott Physical Uranium Trust. Since mid-August, the fund has amassed a supply of uranium which, according to Monday’s data, represents around 16% of the annual consumption of the world’s nuclear reactors.
So strong was investor demand that the Sprott Fund changed its stock exchange program earlier this month to raise up to $ 1.3 billion from an initial target of $ 300 million.
Nuclear power has always been controversial, but perhaps the debate has never been so polarized.
Even uranium skeptics agree that nuclear power could eventually take over a larger share of electricity generation so that the world’s governments can realize their ambitious plans to phase out fossil fuels. Proponents anticipate a nuclear fission renaissance that could generate $ 5.9 trillion in global investment by 2050, the year dozens of nations, including the US, aim to achieve a net-zero economy.
There is a growing global awareness that the closure of coal or natural gas power plants can lead to electricity bottlenecks. And meanwhile, reliance on wind, solar, and water power has proven unwieldy – as demonstrated by California’s seemingly constant threat of power outages and Europe’s rising energy prices.
This is where the promise of nuclear power and its 24/7 CO2-free electricity comes into play.
To reach its potential, the Sprott fund has been buying up uranium from the spot market almost daily, sometimes buying more than £ 500,000 in a single day, according to its website and social media account.
This helped push uranium futures to $ 50.80 last week, the highest level since 2012.
The pace of Sprott purchases is a change from previous investment vehicles like Yellow Cake Plc, which bought $ 100 million in uranium in a deal with Kazatomprom in March.
Sprott’s “incessant” fundraising, along with daily spot market purchases, “has a far greater impact on the psychology of market participants than the erratic, inconsistent and predictable fundraising of the past,” said Brandon Munro, chief executive officer of Bannerman Energy Ltd., an Australian listed uranium development company, notified by email.
This surge in demand also came at a time when historically low prices and pandemic mine disruptions led uranium producers like Cameco to buy on the spot market to meet their long-term contracts with consumers.
Meanwhile, Kazakh producer Kazatomprom is in talks to ship the metal directly to Sprott for supplies that would possibly begin in 2022. The miner also warned of a “small risk” that it would not meet its 2021 production target, saying earlier this year it would keep its production at reduced levels until 2023.
“The supply is falling significantly,” said Nick Piquard, portfolio manager at Horizons ETFs, which owns a uranium ETF. He added that the Sprott purchase will also remove some of the inventory that had hung over the market after Fukushima, leading to the closure of most of the Japanese nuclear reactors.
The Fukushima disaster, as well as the Chernobyl and Three Mile Island accidents, have made nuclear power a suspect for years.
Some governments are rethinking this approach.
Illinois Governor JB Pritzker signed a comprehensive climate bill this month that included nearly $ 700 million in subsidies for Exelon Corp. reactors over a five-year period. In China, the short-term goal is to have six to eight new reactors approved each year and have 70 gigawatts operational by 2025 and 40 more under construction, according to the China Nuclear Energy Association.
In Japan, too, nuclear power is slowly returning. While the country has only put a third of its 33 operational reactors back on stream in accordance with Fukushima safety regulations, it aims to get the rest back on stream by 2030. Taro Kono, a Minister for Administrative Reform, who is a leading candidate for the replacement of Prime Minister Yoshihide. Suga said the country would need some level of nuclear power to meet its pollution control goals.
That’s not to say that there isn’t still an uphill battle going on. While some nations are resuming nuclear power, others are stepping out. Germany, for example, will shut down its last reactor next year.
At the same time, the future of nuclear power could be propelled by a new generation of smaller reactors that are expected to be faster and cheaper to build. These so-called small modular reactors will require far less uranium than the currently common huge conventional plants – another potential dent for the raw materials market. Still, it will be at least a decade before the smaller reactors come on stream.
Meanwhile, the big question is whether the gains in investor demand will be enough to sustain the market.
Even before the recent price rally began, there was a surge in demand for uranium from the investment sector, according to John Ciampaglia, chief executive officer of Sprott Asset Management, which oversees the physical trust.
Jonathan Hinze, president of UxC LLC, a leading nuclear fuel market research firm, said about 20 million pounds of uranium had been purchased from Yellow Cake, Uranium Participation Corp’s analysis firm. The Sprott Uranium Fund emerged from the April acquisition of UPC, which held 18 million pounds of uranium.
And while uranium demand from utility companies hasn’t moved much recently (nuclear fuel’s largest consumers are met by their own stocks and probably won’t need them in the next year or two), producer Kazatomprom has warned of the supply long term to bottlenecks as investors pick up physical inventory and new mines don’t start fast enough.
“What has really changed is the financial investors’ view of uranium,” said Hinze.
“It is very possible that this surge in the spot market is the catalyst to get more utilities to get involved and sign long-term contracts,” he said. “This is the piece that would be the next part of the cycle.”
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