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For commodity investors, uranium has long been a radioactive asset. The price of the metal, which in its enriched form is used to fuel nuclear power plants, has languished since the Fukushima disaster in 2011. Political chaos in Niger, where the military government has suspended exports of uranium to France, should spark a rethink.
The crisis will not cause immediate shortfalls. Niger is a major supplier to the EU, which buys a quarter of its uranium from the west African country. But globally its importance pales in comparison to Kazakhstan, by far the largest producer, Canada, Namibia and Australia. On top of that, the metal is widely stored. In 2022, global stockpiles stood at about 3.8 times annual demand, according to Alexander Pearce at BMO.
The main impact of instability in Niger will be to highlight improving fundamentals. The market is already tight. Low prices over the past decade reduced production, which fell a quarter from 194mn pounds in 2013 to 145mn pounds last year. As a result, global demand already outstrips supply by some 50mn pounds per year. This is depleting stockpiles.
The gap is set to grow. Climate change is upon us and renewables cannot substitute fossil fuels in their entirety. The cloud of disapproval around nuclear energy is dispersing. Some 8GW of new capacity came online in 2022, according to the IEA. Reaching net zero will require annual additions of more than four times that amount by 2030.
The net result should be to drive up the price of uranium. At $57 per pound, it has increased 16 per cent year to date, according to S&P. That is still below the price required to bring new production to market, which BMO estimates at $62.50 per pound.
There are already signs of life in the sector. Australia’s Paladin has announced plans to restart its mine in Namibia. London-listed Kazatomprom on Tuesday increased 2023 sales guidance by 13 per cent.
For investors who do not fancy exposure to the complicated business of extracting uranium, the likes of Yellow Cake and Sprott’s Physical Uranium Trust are worth a look. These groups, which simply buy and store the metal, are not a bad way to play the fission mission.