2018 was a down year for many commodities, with oil, coffee and sugar among the worst hit. One metal however emerged unscathed: uranium. The spot uranium price in December was actually up over 20% since the start of the year, and it has continued to hold within spitting distance of $30 a pound – trading at US$28.70 a pound as of Dec. 28.
Why did uranium do so well? In 2018, we at Ahead of the Herd wrote extensively on the coming bull market for uranium. In fact, the conclusion we reached was the uranium price must go up, due to a confluence of factors. In sum, these are:
- Skyrocketing demand. The global capacity for nuclear power is expected to grow by 27% between 2015 and 2030. Nuclear consultant UxC estimates annual uranium demand will spike by nearly 60%, from the current 190 million pounds of U3O8 to 300 million pounds by 2030.
- Mines have shut down. At current prices, about three-quarters of uranium mines are uneconomic. This is why several large uranium mines have shut down recently. Big mines like Ranger in Australia, and Rossing in Africa are running out of ore. As the grades become too low to be economic, these multi-million (annual) pound producers will scale back production, or even close down, further inflating prices.
- Supply shortfall. Uranium supply has been steadily dropping since 2016. That year total mined supply was around 163 million pounds, in 2017 it was 154 million, and in 2018 it was under 135 million. With current U3O8 demand at 192 million pounds, that leaves a shortfall of at least 57 million pounds.
- Uncovered demand. Uncovered uranium demand (utilities’ requirements for U3O8 that is not covered by contracts) is projected to increase by up to 54 million pounds by 2020, or just under a third of total demand that year. Then it keeps rising: 150 million pounds in 2025, 179 million pounds by 2030. That 179 million pounds of uncovered demand is actually 16 million pounds more U3O8 than total mined production predicted for that year.
- More buying on spot. On top of constrained mine production, coupled with higher demand for nuclear energy as new reactors get built, there is expected to be more buying on the spot market which is about to put upward pressure on the spot price. Cameco has closed down mines, but it still committed to supplying uranium to its long-term contracts with utilities. With prices so low, it’s actually cheaper for the Canadian producer to buy uranium on the spot market than to mine it. Cameco will have to buy 8 to 10 million pounds of spot uranium over the next few months. This represents around a quarter of the spot market. On top of this, several new uranium funds and holding companies have emerged in the last year. Seeing an imbalance in the market, their rationale is to buy uranium on the spot market, store it, and sell it later to utilities when the price goes up.
The outlook for nuclear, and uranium, is expected to get even better. Louis James of Casey Research, who changed his name to Lobo Tiggre and now runs Independent Speculator, sees uranium as a better speculation this year than gold.
For Tiggre’s explanation, which reinforces our arguments, see his commentary in Kitco. In a recent video interview, he said, “What I love most about uranium is that it doesn’t matter what the global economy does,” which is not something that can be said about most commodities.
As for nuclear energy, we only need to look at the facts. China has the most reactors in the pipeline including 43 operating, 15 under construction and 179 planned or proposed. Globally there are 453 operating nuclear reactors and 55 new reactors under construction. Japan, which shut down all its reactors following the 2011 earthquake/ tsunami, now has nine reactors back online, up from just three in 2017.
Think what you like about Microsoft founder Bill Gates, but the billionaire philanthropist is certainly influential. In a year-end letter detailing what he learned in 2018, Gates writes one of his goals in 2019 is to persuade US leaders to “get into the game” of advanced nuclear energy.
“Nuclear is ideal for dealing with climate change, because it is the only carbon-free, scalable energy source that’s available 24 hours a day. The problems with today’s reactors, such as the risk of accidents, can be solved through innovation,” Gates says in his blog – clearly referring to his TerraPower venture.
This Editorial was produced in collaboration with Richard (Rick) Mills & www.aheadoftheheard.com
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