Market Overview

Uranium futures skyrocketed over the last month, since mid-August, creating an amazing phenomena of the year. Prices surged by 45% from the August 16 bottom of $30.3 per pound to above $44 per pound as of September 13. The radioactive metal left other commodities behind in the dust and most of the other financial instrument demonstrated a “chain reaction” within financial markets.

The growth drivers behind this amazing rally were seen to be partially of a speculative nature, but they also have a fundamental background behind them that may lead to a sustainable nature of the growth.

ETF Sprott Physical Uranium Trust (SPUT)  started aggressively buying operations of physical metal in August. Thus ETF has started to offer its units to attract investments and scale up these operations up to $200 million on such a limited market.

The appearance of SPUT ETF in the market spurred demand and prices. Such a demand may look more artificial and speculative, but the Fund just happened to come at the “right place and right time” to produce a ground breaking effect on prices as the timing was perfect and the niche in the market was up against almost no competitors. Booming prices are well ahead of the real physical demand for uranium, but it also has a fundamental background behind it.

For many years after the Fukushima nuclear disaster in 2011, uranium prices were stagnating between $20 and $30 per pound. However, over the last few months a number of events have led to movements in prices. The European Union finalised a Green Deal in July, while world leaders have voiced their intentions to move towards a green economy by lowering carbon emission, plus the pandemic has also played a role.

The transition from a carbon economy to a green one is thought to sharply increase the role of nuclear energy and its fuel uranium. Japan is restarting its nuclear plans while the United States declared that further peaceful nuclear developments are underway and that it is increasing its currents share of nuclear energy of 19% in electricity production. Such a call for the increase of nuclear power generation comes at a time when global green electric power, that is generated by wind, solar energy and other sources of green energy, is still quite expensive. Also, it is not at a decent level to replace carbon-linked energy generation, as this requires vast investments in construction and electricity production. This switch is thought to take place for two or even three-decades. Nuclear plants, in contrast , are already a part of the electricity generation infrastructure and may increase production quite rapidly.

Paradoxically, in such a perspective uranium mining is decreasing thanks to the pandemic. Lockdowns and the disruption of supply chains has led to decline in mining operations.

Such circumstances may create a background for a possible uranium prices rally. But, the market is always ahead of the objective realities. SPUT just used such an opportunity to maximise its profits. But true perspectives for uranium prices are difficult to judge at the moment as current price levels have not been  seen for nine years and are ahead of spot market realities. So, a correction in prices to $37-39 per pound may be seen in the coming months if the demand for a physical metal remain steady. But we need to consider a long-term perspective too as consumers may face a shortage of uranium over a one or two year period as their contracts for deliveries expire. Together with the rising global demand, it may lead to a higher prices of $50-60 per pound. So, it may be interesting to consider buy operations for such a perspective, especially if current prices would suffer a correction to $37-39 per pound.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.