Uranium price forecast: A minefield of volatile factors

Conflict, unrest and shortages are making for an uncertain future for the price of uranium

A yellow glowing shard of ore rests on top of other black rocks                                 
Will Russian sanctions contribute to uranium’s supply deficit? – Photo: Shutterstock
                                

Contents

Who produces uranium, and where?

Data supplied by the World Nuclear Association shows that Kazakhstan is by far the largest producer of uranium. Kazakhstan’s mines are responsible for 41% of world supply in 2020. Other major producers include Australia, Namibia, Canada and Uzbekistan.

Kazatomprom, the national operator of the Republic of Kazakhstan, is the world’s largest producer and seller of uranium, followed by France’s national operator Orano and Canada-based Uranium One.

The largest uranium mine is the Cigar Lake Mine, located in the Saskatchewan province of Canada. However, mining practices are steadily being overtaken by “in situ leeching”, which replaces underground mining with above-ground bore drills.

How to invest in uranium

Unless investing into uranium-related mining stocks, such as Cameco or Kazatomprom, or the Sprott Physical Uranium Trust uranium fund, gaining exposure to the uranium price is typically done through futures contracts.

Since uranium is not exchanged on the open markets, some analysts suggest that the price acts largely independently from other commodities. Research conducted by Dominik Kryzia and Lidia Gawlik of the Polish Academy of Sciences found “the existing empirical studies of the uranium market… have shown that uranium prices change regardless of the price of competing fossil fuels, such as coal and oil”.

The research paper, called Forecasting the price of uranium based on the costs of uranium deposits exploitation, also mentioned that long-term contracts dominate the uranium market, constituting 90% of all trade compared with 10% in spot market trades. The Chicago Mercantile Exchange (CME) offers futures contracts in the US and is one of the primary outlets for gaining exposure to the price of uranium.

The uranium supply deficit

According to Yellow Cake, a company listed on AIM that provides investors with exposure to uranium: “Primary production has consistently fallen below market demand for uranium over recent years and the primary supply deficit reached a new record in 2020.”

Historically low spot prices resulted in a lack of incentivisation in the sector, leading to decommissioned mines and a lack of exploration and development.

Even Kazatomprom cut its planned production rates over three years starting from August 2019. Meanwhile, the Covid-19 pandemic predominantly affected the supply side of the uranium market, leading to a 12% reduction in production despite relatively consistent demand rates.

The supply deficit is predicted to continue, despite speculative interest in uranium driven by a strong nuclear energy push.

Uranium price action

In 2021, the price of Uranium reached the highest levels since 2014, driven by numerous external factors. As a key component of nuclear energy, investors continue to bet on increasing demand for uranium as the world looks towards alternative energies. Throughout the year, the uranium spot price rose from around $30 to $42.05 a pound, an increase just shy of 40%.

The volatile geopolitical environment in the opening stages of 2022 was the basis for continued price surges. Protests in Kazakhstan against rising energy prices turned into large-scale unrest, resulting in the deaths of hundreds of protestors. Meanwhile, Russian aggression against Ukraine steadily escalated, resulting in global sanctions against the Putin regime, causing further supply-chain anxieties.

Put together, these factors contributed to a strong headwinds and a rally between 1 January and 31 March, as the price of uranium nearly doubled from $30.20 to $58.20 a pound, according to data from Cameco.

As of 5 April, Uranium was trading at $56.70 a pound, a value increase of approximately 83% year on year.

Uranium price forecast 2022

InvestingNews.com suggests: “Constrained supply in a sector that was already battling headwinds before the pandemic will likely lead to more uranium price upside in 2022.”

One analyst commenting on the uranium price forecast for 2022 suggested that the ore’s price could head up to as high as $200, before a 50% retraction to the $100 mark. Another analyst has a more conservative estimate of $70 per pound.

The 12-month uranium price forecast at Trading Economics is estimated to reach a value of $66.17.

Uranium could continue its bullish run, according to Mining.com, partially due to an aggressive buying spree by the Sprott Physical Uranium Trust, which increased its holdings by 10% throughout February 2022 alone.

Meanwhile, The Conversation recommends caution over “speculative interest and irrational exuberance”. The publication added: “We could therefore see a bubble in the uranium market, and don’t be surprised if it is followed by an over-correction to the downside.”

Uranium price forecast 2025

Despite a steadily increasing demand for uranium, supply could fall by 15% in 2025, according to the Financial Times, owing to a lack of investment in new mines. This disequilibrium could lead to an inflated price.

However, as reported by Markets Insider, Morgan Stanley “is not yet convinced” that the uranium price forecast can sustain the momentum is has recently seen, making the uranium price forecast for 2025 unclear.

Based on the costs of uranium deposits exploitation, Kryzia and Gawlik’s research estimated a value of $97.30 for 2025, heading up to $107.70 in 2030.

Since commodities including uranium are subject to price volatility due to external geopolitical factors, all uranium price predictions are only speculative. They can be a useful guide, but should not be the sole basis for conducting a trade. Be sure to source independent financial advice if you are considering an investment.

FAQs

Recent global events have contributed to some bullish uranium price predictions, further encouraged by a predicted supply deficit. However, the factors surrounding the uranium price action are highly complex and subject to volatility. Always get credible financial advice first.

There is a good chance that uranium will go up, due to supply shortages (exasperated by Russian sanctions) and increasing demand. Although, the current uranium price could be overvalued, leading to a potential drop in the near future. Further research should be conducted before concluding your own uranium price forecast.

If you do decide to invest, you should bear in mind that uranium is not traded on the open markets. Instead, the Chicago Mercantile Exchange (CME) offers sophisticated future contracts. Only invest if you are confident in your trading abilities. Any uranium price forecast presented in this article is intended as a neutral resource and should not be taken as financial advice.

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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