Commodities 2024: Market participants see geopolitical issues driving uranium spot market

Recent surges in uranium spot prices have market participants looking to new production to help mitigate the growing supply-demand imbalance against the backdrop of heightened geopolitical tension.

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Supply chain issues, growing international political risks and a sense that demand will continue to outpace supply are just a few of the drivers that Paul Goranson, CEO of US-based uranium producer enCore Energy, said impacted the uranium spot market in 2023. He said he believes these impediments, and the mismatch between supply and demand, are likely to continue, “If anything, I see 2024 getting tighter,” he said Jan. 8.

Platts’ U3O8 spot price rose nearly 90% in 2023 as industry participants expressed concerns about growing demand. Prices are at levels not seen since 2007, when prices spiked briefly to a historic record against a backdrop of enthusiasm for a nuclear renaissance and flooding of the world’s biggest mine.

Although several mining operations announced restarts this year and multiple have begun production, “supply is not going to come on fast enough,” Goranson said. “It takes a lot of effort and a lot of capital to get that supply in place.”

A number of mining companies around the world, sparked by higher prices, are attempting to restart mines after being shut for several years due to poor economics. There is also interest in new mines.

In the US, Energy Fuels, enCore and Ur-Energy began production at facilities in Arizona, Utah, Texas and Wyoming. The operations are expected to produce a combined 2.2 million lb U3O8 in 2024. US uranium mines produced a total of 194,000 lb of U3O8 in 2022, according to the US Atomic Energy Agency.

“If we want to expand our nuclear capacity … we are going to need to produce a tremendous amount of uranium,” Sprott Asset Management CEO John Ciampaglia said Jan. 3 in a report released by the company. Sprott Asset Management operates the Sprott Physical Uranium Trust, known as SPUT, a publicly traded fund that holds uranium and seeks to be a vehicle for investors to gain exposure to the material. “With the upward trajectory of the price of uranium generating renewed investor interest and government support, [miners] need to demonstrate that they can create real shareholder value by producing drums of uranium.”

Other operations expected to come online in 2024 include enCore’s Alta Mesa project in Texas, Uranium Energy Corp.’s Christenson Ranch in Wyoming and Peninsula’s Lance project in Wyoming.

“There is a point at which fuel costs make new builds uncompetitive,” a fuel buyer said Jan. 12 on the condition of anonymity, “Next year I don’t see a lot changing to move the trajectory.”

Australia’s Boss Energy expects its Honeymoon project to begin production by the end of 2024. The nameplate capacity of the facility is anticipated to be 2.45 million lb annually, the company has said.

The world’s largest producer, Kazatomprom, announced Jan. 12 that challenges in accessing sufficient volumes of sulfuric acid could limit its efforts to raise uranium output levels in 2024.

The company previously said it intended to raise its uranium production in 2024 to 90% of amounts in government subsoil usage contracts from the 2023 target of 80%, in response to increasing global demand, but Kazatomprom said challenges with the availability of sulfuric acid and delays in construction had now called that goal into question.

Kazatomprom had announced plans to produce around 21,500 mt of uranium in 2023. If it were to produce 90% of allowed levels under the contracts, this would equate to roughly 23,500 mtU. The company has since 2018 produced only 80% annually of the permitted amount. Kazakhstan was responsible for around half of global uranium production in 2022.

Other issues facing the spot market include repercussions from geopolitical tensions caused by the February 2022 Russian invasion of Ukraine.

“US legislative efforts to finally sanction Russian nuclear fuel services appear to be imminent and could prompt retaliation by Russia,” Ciampaglia said. “While uranium is the building block, conversion and enriched uranium are important steps in the fuel cycle. With Russia controlling meaningful percentages of global capacity in both conversion and enrichment, risk mitigation strategies by the West are underway with the reshoring of the supply chain.”

The US House of Representatives approved by voice vote Dec. 11 a bipartisan bill that would prohibit the import of Russian enriched uranium to the US beginning in 2028, the result of worry over the country’s reliance on Russia for 20% of reactor fuel requirements.

Platts uranium spot price has risen nearly 30% since the measure was passed.

The Senate adjourned Dec. 20 without acting on its version of the bill. The upper chamber is expected to take up the legislation in January.

Severing ties with Russia

“There’s a lot more to a nuclear fuel assembly than just the natural uranium,” Tim Gitzel, Cameco President and CEO, said during the company’s virtual investor day Dec. 19. “Some utilities seek to sever ties with the Russian fuel cycle … that has created a very complicated supply-demand analysis.”

“The uncertainty created by Western companies continuing to do business with Russia … has been driving some of the uncertainty [in the market] which also drives volatility,” Goranson said.

He said he does not envision the ban having any more impact on spot prices.

“People have been preparing for it,” Goranson said, “there’s companies, utilities that have significant Russian exposure. They’re already working their way out, trying to mitigate that risk.”

Russia remains at the center of issues across the nuclear fuel supply chain, Goranson said, pointing to risks surrounding the transportation sector.

“The fact that every shipment that leaves St. Petersburg is at risk of getting sanctioned or having insurance issues as we’ve seen … is creating a sense of short supply.”

The alternate trans-Caspian route for shipping Kazakh uranium to the West, therefore avoiding transit via Russia, is not yet considered consistent and has experienced delays in the past. Some customers, including Cameco, have sought to use the route because of the risk of sanctions and problems getting insurance.

Uranium trading volume

Participants have also noted the reduced volume of purchasing throughout 2023, saying volumes have gone down because the market has gotten tighter, and material more scarce.

According to Platts data, 18.83 million lb of U3O8 traded in 165 deals in 2023.

“The mobile supply of inventory in the market is tied up,” Goranson said. “If utilities have inventory, they are not letting it go. They want to preserve their supplies for the future and that is creating tension and a sense of urgency.”

As the spot price continues to rise sharply, the industry has noticed long-term prices have been slower moving.

“Prices may be stronger, but longer-term prices … remain below the level required to support the investments required to bring more uranium and processing capacity to the market,” Gitzel said.

According to Cameco’s investor day presentation, long-term prices, usually defined as for delivery beyond one year, were between $60/lb and $70/lb as of Dec. 19.

A high level of demand and insufficient supply are keeping spot prices well above the long-term price, market participants have said.

“We have a huge demand on the short-term side because there are utilities that are short,” Goranson said. “They are under a tremendous amount of pressure which is why you see conversion prices are up, you see enrichment prices are up, all that is tied to this short-term demand.”

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