Uranium rally’s half-life may be shortened

Spot uranium oxide prices are up more than 60% since mid-July and hit $42.50 a pound on Friday, the highest since 2014. The immediate catalyst appears to be a Canadian mutual fund that has started loading up on the commodity. The fund, Sprot Physical Uranium Trust, began trading on the Toronto Stock Exchange on July 19. It began issuing $300 million in market equity in mid-August and raised $244.7 million in less than a month. Last Friday, the fund raised another $1 billion in its authorized issue to meet investor demand.

Shares of uranium miners are climbing along with the commodity’s rally. Shares of Canadian giant Cameco are up 54% since the mutual fund’s inception, while NexGen Energy is up 68%. The Northshore Global Uranium Mining ETF has jumped 75%. It is not uncommon for a commodity’s rally to increase the share prices of the company that extracts the said material. This has not always been the case with uranium, however, for which supply and demand are more stable than in a commodity like oil.

Why rally? Jonathan Hinz, president of uranium market research firm UXC, said there has been a generally higher interest in uranium this year, driven by demand for investments that meet environmental, social and governance criteria. Prices of other clean energy related commodities such as cobalt and copper have also seen a jump this year. Online promotion has also played a part. WallStreetBets, the platform that sent GameStop shares to the moon, has been rife with speculation about uranium lately.

Amidst the excitement, there are a few things to keep in mind. One is that Sproot is not buying uranium directly from miners. Miners also participate in the spot uranium market, but they rely primarily on long-term contracts with utilities. According to Mr. Hinze, much of the spot market trading action in uranium takes place between traders and financial players such as banks. In other words, the commodity’s rally does not necessarily reflect a change in the underlying supply and demand dynamics today.

The rally could also injure the miners. For example, Cameco buys uranium from the spot market to fulfill some of its contracts with utility customers after some of the mines close. For 2021, Cameco expects to buy between £11 million and £13 million of uranium to meet its obligations, although the company has some flexibility to use its working inventory if prices are too high.

Of course, today’s speculation may be rooted in real fundamentals. In the medium term, rising uranium prices mean that miners can command higher prices on future contracts with utilities. In the long run, the buying boom may reflect the belief that the global green energy transition will require more nuclear power, and thus more uranium mining. RBC analyst Andrew Wong wrote in a research note that the uranium market will be “in equilibrium or at a slight deficit” by mid-2020, with a major deficit at the end of 2020 as new reactors come online – mainly in China.

Those betting on a quick turnaround in the approach to nuclear energy, however, may want to take a U-turn here.

This story has been published without modification to the text from a wire agency feed