Uranium lags other energy prices – for now

Analysts say the outlook for uranium is positive, with the next step to be driven by real demand, not financial positioning.

Missing, but maybe not for long. That’s the best way to look at uranium, which was promising a lot last year with an 88% rise from US$27/lb to US$51/lb, before falling back to US$44/lb and to stay at that price while all other forms of energy increase. , including coal and oil.

Russia’s well-telegraphed invasion of Ukraine is the icing on the energy cake, which has begun to rise as the world sheds the immediate effects of COVID-19 lockdowns and transportation blockages.

Oil rose 48% last year to US$77 a barrel and continued to rise in the first eight weeks of this year to around US$96.80 a barrel.

Coal rose 30% last year to US$159 per tonne, and continued to rise this year to US$236/t.

Uranium is lagging behind, indifferent to events in Ukraine and failing to capitalize on last year’s big rebound, which came after 15 years in the bin of sin – plagued by a trio of power plant accidents nuclear weapons, which began with Three Mile Island in the United States, followed by Chernobyl in Ukraine and Fukushima in Japan.

It was these events that nearly killed the case for uranium as a reliable, baseload, low-emission electricity provider – and an ideal complement to the intermittent streams of wind, solar and even hydropower that rely on rainfall. regularly to function effectively.

The theory behind a uranium renaissance remains intact, although last year’s price rally was largely a flurry of financial markets as investment funds bought up excess material, giving the impression of a real demand – which was not the case.

Funds such as the Sprott Physical Uranium Trust and Yellow Cake have done little more than raise investment funds to buy uranium from one stockpile and move it to another with little material consumed, just moved (or simply rebadged in the same secure warehouse).

Waiting for uranium users

It is what comes next that should allow for a sustained and substantial rise in the price of uranium, but only if the owners of mothballed mines maintain their discipline and do not reopen too quickly and the funds are also ready to be patients and not to sell too much. soon.

Indeed, miners and fund managers are waiting for uranium users, and this largely means power plant operators, to re-enter the market to replace what has been consumed in their reactors or converted into fuel pellets for newly built nuclear power plants.

This shift in the uranium market from a short-term rebound to long-term demand won’t happen overnight, but there are encouraging signs that it’s starting to happen.

Uranium Sentiment Changes

What’s funny (in a tone of black humor) is that the same people who condemned uranium as an environmentally unacceptable source of electricity are now leading the uranium cheering team after belatedly recognized that the metal does not add to carbon pollution – the main climate change culprit.

Governments line up to join the nuclear power sector, led by China, France, Britain and the United States, as plans to decommission old reactors are put on hold and approvals granted for new builds .

Nuclear utilities re-enter the market

For investors with an eye on Australia’s uranium sector, the key to the next move will be confirmation that power utilities are back in the market, offering long-term contracts for large uranium supplies. metal.

This process may have started in November when Kazakhstan’s state-owned uranium company signed contracts with two Chinese state-owned companies.

Cameco, the Canadian leader in uranium, has also reportedly become more active in negotiating new contracts.

ASX stocks will wake up with the uranium sector

News from the contract market, as opposed to the (short-term) spot market scum and bubble, is what will wake up Australia’s crop of smaller uranium players that did well last year before going back to sleep.

Stocks such as Lotus Resources (ASX:LOT), up 60% last year but down 28% this year, and 92 Energy (ASX:92E), up 75% last year but down down 30% this year, are examples of the early stages of the uranium revival running out of steam thanks to stagnating metal prices.

Elevate Uranium (ASX:EL8), up 196% in 2021, down 15% this year, and Paladin Energy (ASX:PDN) up 88% in 2021 and down 24% this year, reflect the same precursor issue followed by slippage, which was likely caused in part by stock traders profiting from uranium successes.

Solid outlook

Two recent research reports highlight the process the uranium market goes through, with Canaccord Genuity arguing that the case for maintaining exposure to the metal is strong, while Shaw and Partners believe that uranium has moved past its cyclical downturn, with fundamentals improving as inventories decline. .

Positive in their vision of uranium, the two finance companies are dodging the crucial question of timing. Say only that the recovery will continue – but don’t ask exactly when.

Shaw, in a report released last week, listed a series of recent developments underpinning the case for uranium investment, including supply-side discipline as potential mine developers slow down, aging mines are closed mines, continued purchases by investment funds, long-term Chinese contracts, France forecasting a reactor building frenzy and a surprise U-turn from Europe which reclassified uranium as a green fuel – a conversion to rival that of St Paul on the road to Damascus.

Meanwhile, Canaccord noted that 2021 was “dominated by financial players” in the uranium market and that this year will see short-term volatility, demand for nuclear energy continues to rise even as supply mining is at its lowest level in 12 years.

Significantly, Canaccord believes that a uranium price just above US$40/lb is not enough to incentivize mine restarts and investment in new mine supplies.

“As a result, we believe this cycle still has a long way to go,” the broker said.

Conventional demand, according to Canaccord, remains extremely robust as governments affirm their commitment to nuclear power, while the Sprott Physical Uranium Trust sits on a US$2.4 billion cash pile, ready to acquire more. of metal and possibly seeking a listing on the New York Stock Exchange later this year, which would be a catalyst for the uranium market.

Like Shaw, Canaccord argues that a uranium price of US$60/t or more is needed to encourage development (and redevelopment) of the mine – a price likely to close this year before being delivered l ‘next year.

Once the price dam is broken, analysts expect uranium to return to around $85/lb, a price last seen in 2007.

The pioneers in the uranium sector did well last year. They could enjoy a second feed later this year as the price of the metal resumes its upward trend – this time driven by genuine consumer demand, and less by financial maneuvering.

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