Home >Markets >Commodities >Uranium rally might have a brief half-life

This hot commodity needs to be handled with care.

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

Uranium miners’ shares are ascending alongside the commodity’s rally. Canadian giant Cameco’s shares are up 54% since the mutual fund made its debut, while NexGen Energy is up 68%. The NorthShore Global Uranium Mining ETF has jumped 75%. It isn’t uncommon for a commodity’s rally to spur a rise in the share prices of a company that extracts the said material. That hasn’t always been the case for uranium, though, for which supply and demand tends to be more stable than a commodity such as oil.

Why the rally? Jonathan Hinze, president of uranium market research firm UxC, said that there has generally been more interest in uranium this year driven by demand for investments meeting environmental, social and governance criteria. Other clean energy-related commodities such as cobalt and copper have also seen price bumps this year. Online hype has played a role too. WallStreetBets, the forum that sent GameStop shares to the moon, has been filled with speculation about uranium recently.

In the midst of the excitement, there are a couple of things to keep in mind. One is that Sprott isn’t buying the uranium directly from the miners. Miners participate in the spot uranium market too, but they primarily depend on long-term contracts with utilities. A lot of the spot market trading action in uranium occurs among financial players such as traders and banks, according to Mr. Hinze. In other words, the commodity’s rally itself doesn’t necessarily reflect changes in the underlying supply and demand dynamics today.

The rally could even hurt miners. Cameco, for example, buys uranium from the spot market to cover some of its contracts with utility customers after it idled some mines. For 2021, Cameco expects to buy between 11 million to 13 million pounds of uranium to cover its obligations, though the company has some flexibility to use its working inventory if prices get too high.

Today’s speculations might be rooted in real fundamentals, of course. In the medium term, a rise in uranium prices means miners might command higher prices on future contracts with utilities. Longer term, the surge of buying could reflect a belief that the global green energy transition will require more nuclear energy, and thus more uranium mining. RBC analyst Andrew Wong wrote in a research note that the uranium market will be “in balance or in a slight deficit" through the mid-2020s, with a larger deficit forming in the late-2020s as new reactors come online—primarily in China.

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



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

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