According to data from HANetf’s Sprott Uranium Miners, uranium has been one of the best-performing asset classes of 2022, with October being an especially good month for the metal. The fund revealed that uranium spot prices went up by 24.12% over the year until Oct. 31, going up by 8.32% in October alone while the rest of the commodities market saw a gain of just 1.67%.
Uranium, which is the primary fuel for nuclear power reactors, has seen its demand increase in recent years as countries step up their electricity generation efforts to meet surging local demand. With several western countries pledging to phase out traditional combustion engine-powered vehicles in exchange for electric vehicles, the demand for electricity is poised to increase exponentially over the next decade.
Jacob White, a senior analyst at Sprott, stated that surging demand for uranium conversion and enrichment had led to an increase in uranium spot prices. The ongoing Russia-Ukraine war is also to blame for the surge in uranium prices. Most western countries issued sanctions against the Kremlin in the wake of the Ukraine invasion, attempting to weaken its economy by banning key Russian exports.
Since Russia is the largest player in global uranium production, accounting for nearly 40% of the world’s entire uranium conversion infrastructure, banning Russian uranium significantly cut supply and increased prices.
As it stands, most of the demand for uranium is from the nuclear power generation sector. Even though nuclear power plants tend to operate on an 18- to 24-month refueling cycle, most owners make sure to secure contracts for future uranium supplies long before they have to refuel.
According to the International Atomic Energy Agency, there were 437 operational nuclear power plants across the globe at the end of 2021 with a total net capacity of more than 389 GW. There were an additional 56 nuclear power reactors under construction at the time, the agency noted.
A November report from Sprott predicted that based on current government policies, nuclear power generation would grow by 53% from 2021 to 2050.
Surprisingly, experts say rising uranium prices may have a “negligible” effect on the profitability of nuclear power plants. The World Nuclear Association noted that fuel costs are a small portion of overall energy generation expenses of nuclear power plants, stating that while the plants are expensive to build, running them tends to be “relatively cheap.”
Construction is often the most significant factor in determining whether or not to build a new power plant, with the running expenses, including the cost of buying uranium, being negligent in comparison.
As such, it is unlikely that the continued increase of uranium prices will decrease the profitability of nuclear power plants or discourage the construction of new ones. Rather, a sustained boost in uranium prices could spur extractors such as Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) to accelerate their plans to expand production.
NOTE TO INVESTORS: The latest news and updates relating to Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) are available in the company’s newsroom at http://ibn.fm/UUUU
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