Uranium has been one of the best-preforming asset classes in 2022. This information was supplied by HANetf’s Sprott Uranium Miners UCITS ETF (URNM). The uranium spot price has increased by twenty one percent during the year through October 31st.
October was a particularly strong month for uranium oxide (U3O8). It is used to make fuel for nuclear power plant reactors. The spot price of U3O8 increased about eight percent in October. Broader commodity markets gained only one and two thirds of a percent.
Jacob White is a senior analyst for URNM. He said, “We believe that strong demand for uranium conversion and enrichment, coupled with a shift away from Russian suppliers, supports a further increase in the U3O8 uranium spot price.”
Most of the demand for uranium comes from the nuclear power generation industry. Many nuclear power plants operate on an eighteen month or twenty four month refueling cycle. Nearly all owners of nuclear power plants contract for fuel well in advance of their refueling outages.
The International Atomic Energy Agency (IAEA) said that four hundred and thirty-seven nuclear power plant reactors were operational across the globe at the end of 2021. Their total net capacity was more than three hundred and eighty-nine gigawatts. The agency said that fifty-six additional power reactors were under construction at that time.
In a Sprott report released on November 11th, White expressed his optimism for uranium based in part on a forecast by the International Energy Agency (IEA). White wrote that the agency “expects nuclear energy generation to grow 53% from 2021 to 2050 based on current stated government policies in place, 84% based on announced government targets, and 109% on its net zero emissions by 2050 scenario.”
The underlying fundamentals may be strong for U3O8 spot, conversion and enriched uranium prices. However, the effect that this will have on nuclear power plant profitability may be negligible. The World Nuclear Association (WNA) reports that fuel costs are a minor part of total generating costs for nuclear power plants. The association said that “Nuclear power plants are expensive to build but relatively cheap to run.”
In a report by the WNA that was published several years ago, it said that the economics of nuclear plants are heavily influenced by their capital costs. These include the cost of site preparations, construction, manufacture, commissioning and financing of nuclear power plants. As most people know, the construction of a nuclear power plant takes thousands of workers, huge amounts of steel and concrete, thousands of components and many interrelated systems to provide electricity, cooling, ventilation, information, control and communication.
Financing costs change materially for nuclear projects in relation to time to complete the plant construction. With the interest rate and/or mode of financing employed, it is not uncommon for capital costs to account for more than sixty percent of the levelized cost of electricity (LCOE) from a nuclear facility. While uranium demand many continue to rise, it is unlikely to significantly affect the overall economics of most nuclear power plants.