Figure 1: Uranium Price Chart Since 2010
Uranium prices experienced a continuous uptrend until 1st quarter of the year 2024. The tailwind in the sector was the byproduct of the estimated squeezed supply and future demand growth due to the geopolitical upheaval. Currently, prices are trading at ~ USD 80 per pound, facing downward pressure influenced by reduced trading volume and liquidity. As per the Citi analyst, It’s future sounds bright, the firm expects the current softness in the prices will be subsided by the future demand for nuclear energy growth; on the other hand, supply will keep facing challenges. Citi forecasts uranium prices to reach an average of USD 110/lb in 2025.
Uranium does not trade in an open market like other metals like copper, nickel, and gold. Producers sign long-term contracts with the utilities directly; hence, the contracted prices are typically higher than the spot prices. Further, it took two to three years to fulfil the order after signing a contract. For this reason, most of the fuel for the reactors is secured through long-term contracts.
Factors Affecting the Uranium Supply
Canada and Kazakhstan are significant exporters of uranium, accounting for 60% of the market supply directly from the mines. Both countries’ supply disruption news also contributes to the price rise in 2023.
In 2022, social unrest in Kazakhstan due to the protest against doubling the gas prices after revoking government subsidies put 40% of the global uranium supply that originates from Kazakh mines at risk.
Although Kazakhstan’s uranium production has been slightly revised upward, with an expected output of 59 million pounds for the year 2024, as sulfuric acid supply issues are anticipated to be resolved.
Cameco, one of the prominent Canadian uranium players, cut its production forecast by 9% as the company expects reduced production from its Cigar Lake and Key Lake operations in 2023. The Cigar Lake and McArthur River mines are demonstrating improved performance and are projected to reach their production peak in the year 2024.
According to the World Nuclear Association, Niger is the world’s seventh largest uranium producer, with approximately 5% contribution to the global supply. On 26 July 2023, a coup d’état occurred in Niger, putting the relevant supply at risk.
Russia dominates the global nuclear industry with a supply of approximately 14% of uranium concentrates, 27% of conversion and 39% of enrichment. The sanctions on Russia imposed by the United States, which prohibit the purchase of uranium from Russia, were transformative events for the industry and created uncertainty in the market.
By the end of 2023, the uranium supply was under heavy pressure but in the year 2024 it is bit more relaxed.
Source of the Emerging Uranium Demand
Many accumulated factors are causing uranium prices to increase. The tight and estimated reduced production outlook is impacting the prices positively. Low inventories due to the disrupted productions during COVID-19 lockdowns also contributed. The sanctions on Russia made Russian supplies inaccessible to the world.
In May 2023, Urkain’s Energoatom inked a deal worth USD 4 billion to supply uranium hexafluoride (UF6) from 2024-2035 to suspend its reliance on Russian fuel and to secure its next 12 year’s energy needs. More eastern European countries are looking for alternative uranium fuel supply options than Russia.
Russia plays a crucial role in providing substantial fossil fuels to European nations. In 2021, it emerged as the primary exporter of oil and natural gas to the European Union, accounting for 90% and 40%, respectively. The Western sanctions on Russia due to war amplify the energy crisis in Europe. In June 2022, the annual energy inflation rate exceeded 40 per cent (peaked) and reached to 16.6% in February 2023, which is considerably lower than the previous year. Households and businesses are still experiencing the high cost of energy.
Also, the “Clean Energy” and “Net-Zero Emission” are the “talk of the town” in the emerging economies. The world is searching for clean, reliable, and cost-effective energy sources.
According to the IEA World Energy Outlook, there is a projected 52% surge in electricity demand from 2020 to 2040, and a further 75% increase anticipated from 2020 to 2050.
Figure 2: Growth In Global Electricity Generation
Source: IEA World Energy Outlook 2022
In the year 2050, close to 90% of electricity generation is derived from renewable sources, with wind and solar PV contributing to nearly 70%. The majority of the remaining portion is sourced from nuclear power.
In 2023, the impact of geopolitical motions and the future energy need brought the world’s attention to nuclear power as a clean and reliable energy source. As per the International Atomic Energy Agency, 440 nuclear reactors are operating, and 58 are under construction.
Uranium Requirement and Procurement Statistics
Currently, 440 reactors with a capacity of 390 GWe require some 74,000 tonnes of uranium oxide (U3O8) containing about 62,500 tonnes of uranium. Every GWe of additional new capacity will need approximately 150 tonnes of uranium per year of extra mine production, and an initial fuel load requires about 300-450 tonnes of uranium. In 2021, mines supplied 56,961 tonnes of uranium oxide concentrate (U3O8) containing 48,303 tonnes of Uranium, 77% of the utilities’ annual requirements. The balance is sourced from secondary sources like recycled uranium and plutonium from used fuel, mixed oxide (MOX) fuel, ex-military weapons-grade uranium, blended down and civil stockpiles, etc.
This year, the anticipated demand from nuclear reactors for elemental uranium was estimated at 65,650 tonnes. The World Nuclear Association predicts a 28% increase by 2030, reaching nearly double the current demand by 2040 at 130,000 tonnes of uranium.
Commodity Future Outlook Analysis
Historically, geopolitical events, including wars and conflicts, have influenced commodity prices, including uranium. In situations with concerns about the security of uranium supply or heightened demand for nuclear weapons, there may be potential effects on uranium prices.
Additionally, wars and the possibility of wars create chaos in the economies. Currently, the Russia-Ukraine war and the Israel-Hammas war are going on. Azerbaijan and Armenia were fighting over the Nagorno-Karabakh ethnic territory conflict.
However, it’s important to note that various factors, including global energy policies, geopolitical stability, and developments in nuclear power generation, also contribute to uranium price dynamics.
According to market research firm and consultancy UxC, Utilities are in a rush to build up their stockpiles, and the volume of term contracts for the current year has surpassed 118 million pounds, marking the highest level in over a decade. The world’s two largest uranium producers have already been sold out until 2027. It is estimated that some of the utilities will be short for 2024.
Citi analysts estimate that by 2030, cumulative uranium supply growth is expected to reach 38 million pounds, while global uranium requirements are projected to exceed 40 million pounds during the same period. Although inventories may help balance the market in the short term, Citi notes a long-term downward trend, with inventories expected to decrease by 20 million pounds by 2030, highlighting the critical need for increased production.
In the current scenario, with robust demand for uranium and long-term contract discussions in a time of potential supply disruption, the future looks bright for uranium prices.
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