Uranium Weekly: Uranium Outperforming Other Energy Commodities
TD Investment Conclusion
The Ux Consulting (UxC) weekly spot price indicator published earlier this week increased to US$54.60/lb (+US$1.00/lb w/w) and an increase of US$2.50/ lb over the past month. The spot price is now at its highest level following the sharp price increase immediately following Russia's invasion of Ukraine. UxC also increased its May month-end term price to US$55.00/lb, an increase of US$2.00/ lb from the April month-end price. The term price is now at its highest level since August/September 2013.
Term contract volumes year-to-date now exceed 107 million pounds and UxC expects that term volumes contracted this year will exceed the 125 million pounds completed in 2022. Term contracting activity is occurring at the fastest annual pace dating back to 2010, and UxC is calling for “large amounts of contracting” to remain a feature of the market in the coming years as existing and new nuclear programs around the world fight for security of nuclear fuel supply.
Uranium is not the only component of the nuclear fuel chain that has continued to experience upward pressure this year. Both conversion and enrichment prices have moved higher (+1.3% and +13.6%, respectively), albeit at a slower pace than in 2022. As Cameco management indicated would likely be the case, in 2022, utilities focused on ensuring that they have sufficient conversion and enrichment capacity contracted before focusing on uranium supply, which was seen as being less affected by Russia's actions. Clearly, utilities have now turned their attention to the uranium component of the nuclear fuel supply chain. We also note that the uranium spot price has continued to increase (+13.8% YTD), despite an almost total lack of buying by the Sprott Physical Uranium Trust).
Uranium prices are also outperforming other “energy” commodities on a year- to-date basis. The copper price is down ~16%, WTI oil is down ~12%, and cobalt and lithium are down 27% and 49%, respectively (Exhibit 1).
In our view, the outlook for uranium prices and the nuclear sector in general is the best it has been in more than 15 years. Governments around the world and across the political spectrum are waking up to the fact that nuclear power will play a central role in a low-carbon, stable electrical grid, and are reviewing and updating nuclear power policies to support the nuclear power sector. We are forecasting a uranium price of US$53.57/lb in 2023 and US$58/lb in 2024. Our long-term price is US$65/lb.