Most commodities have seen major declines in price this year, following a spike in prices in 2022. Oil prices are down 6% year-to-date in 2023, while natural gas prices in Europe are down more than 80%. Aluminium, zinc, palladium, in fact virtually every commodity is trading on prices today well below peaks form last year.
One which stands out is uranium. The commodity used to power nuclear power stations is trading on spot prices close to the highest in more than a decade. Over the past twelve months the price of uranium has risen 18%, while since 2017 the price has climbed by more than 130%.
What has been driving this, is a global undersupply of uranium feeding the world’s growing fleet of nuclear reactors. Total demand exceeds supply, and has done for several years, with the difference made up by inventories held by large utilities. As demand rises and supply remains stable, this deficit in supply is growing and putting upward pressure on the price of the commodity.
Demand for uranium, unlike most other commodities, has very little to do with the macro economy. While demand for copper or crude oil will often fall during an economic slowdown, this is not the case for uranium. The large nuclear power stations which use uranium as fuel typically provide baseload electricity for grids, which means they run at high rates of capacity 24 hours a day, seven days a week. Other sources of electricity, like gas fired power, are used to flex up and down to meet fluctuating electricity demand on a typical grid.
So, while during a recession electricity demand may fall, as overall economic activity cools, use of nuclear power will often remain stable.
Meanwhile, there has been a steady shift in attitude toward nuclear power, which has accelerated in 2022 and this year. Russia’s invasion of Ukraine and the subsequent spike in coal and natural gas prices has forced a major re-think about energy security in many countries, with more pro-nuclear policies having already been, or in the process of being, introduced.
In addition, the needs to de-carbonise energy systems and the slow build-out of renewables has further shifted opinion on nuclear power as an option for energy systems in many countries.
In many cases we have seen countries produce updated long-term plans with radical increases in nuclear power predicted for the 2030s and beyond.
In the more immediate term, there is a growing list of nuclear power stations which were scheduled for decommissioning where the closure has been delayed or cancelled. This is adding unexpected demand to uranium markets in the near-term.
In the 2005-2008 period, uranium saw a 10x increase in price. As with the market today, the global market for uranium was in supply deficit and prices had steadily risen, the market became increasingly tight. Then an unexpected interruption to supplies from one large mine in Canada triggered a wave of buying from utilities running nuclear power stations. The cost of uranium fuel to power a nuclear plant is very low relative to the power output and as such, many of these buyers were much more concerned with securing supplies than how much they paid for the fuel.
Today’s market for uranium has many similar characteristics and we have recently seen several unexpected supply disruptions. A military coup in Niger, home to 5% of global uranium output, has interrupted exports from the country. A large Canadian uranium miner has also announced lower than expected production from one of its largest mines following unexpected issues with that location.
History may not repeat but sometimes it rhymes.