Uranium futures is one of the few contracts that has experienced price gains in recent weeks, as the economic impact of COVID-19 continues to weigh heavily on prices for most commodities.
Front-month uranium futures settlement prices have traded up to $32.50/pound in late April, compared with around $24/pound in early March, when most of the world’s advanced economies began shutting down
In contrast to the bull run on uranium, prices for most energy products have sharply declined since the shutdowns began, while prices for industrial metals like copper and steel have also been under pressure amid low end-user demand.
Fundamental Shift
Electricity consumption has held up relatively well in the slowdown caused by the virus. As a key power generation fuel, uranium has been less impacted by the spread of the virus than other commodities that are used more for transport or construction.
Uranium also benefits from a supply-demand balance that is relatively supportive at present. COVID-19 has emerged as a threat to global uranium supply. Indefinite mine closures in Canada, Kazakhstan, Australia and other countries are expected to drive the price of U3O8 uranium higher as utilities fight to secure supply and producers either turn to market purchases or draw down on inventories in order to meet contractual obligations.
On March 23 Cameco, a Canadian uranium producer, announced that it will be temporarily suspending operations at the Cigar Lake mine, home to the largest high-grade uranium deposit in the world.
Kazatomprom, Kazakhstan’s national atomic company and the world’s largest uranium producer, announced on April 7 that it will be suspending production nationwide for three months to slow the spread of COVID-19. In 2019, Kazakhstan accounted for 42% of global uranium production. Supply side disruptions caused by mine shutdowns and suspensions are sweeping across the uranium industry and continue to drive a bullish trend.
In the long-term, demand for uranium is growing, particularly from Asia. In April 2020, there were 55 nuclear reactors under construction across the globe, 22% of which are in China. China also plans a further 44 reactors and is considering adding another 168 in the future.
At the same time as demand is increasing, supply has fallen. A run of consistently weaker prices between February 2011 and December 2017 led some operators to close down mines or suspend operations, reducing uranium output around the world.
New Entrants
The lack of correlation between uranium and other energy and metals commodities is also attracting new participants into the uranium futures markets. Fund managers and general investors have noted the recent price activity and are beginning to get involved in uranium futures trading, many for the first time.
At the same time, the relatively volatile nature of uranium prices in recent years has led to a significant upturn in interest in risk management from electricity producers and project developers that are looking to hedge their fuel price exposure. The changing nature of the physical uranium market is ensuring that market participants are increasingly focused on managing price risk.
OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.
All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).
