By Andre Liebenberg, CEO of Yellow Cake plc
When it comes to uranium, the spot price tends to dominate the headlines. It’s the most visible and frequently quoted figure – representing the price of uranium for near-term delivery (usually within three months).
But while the spot price grabs attention, it doesn’t tell the full story.
Behind the scenes, the uranium market operates on a dual-pricing system, with the less visible ‘term’ market (for deliveries over 3+ years) playing a large role in shaping the long-term supply-demand balance.
Today, there’s a clear dislocation between the two: term prices are climbing well above spot, as utilities rush to lock in future supply at increasingly higher rates. As supply tightens, the gap between spot and term is likely to narrow.
And as geopolitical shifts increasingly impact supply and demand dynamics of the global uranium market, this distinction is becoming ever more important for investors to understand and monitor.
The relationship between spot and term pricing has historically been heavily influenced by levels of uranium inventories.
Since World War II through 1990, global uranium production consistently exceeded commercial requirements, creating a massive inventory overhang of approximately 2.6 billion pounds of U₃O₈.
This oversupply fundamentally altered market behaviour, with secondary supplies from these inventories suppressing prices and discouraging investment in new production.
For decades, these excess inventories dampened the natural relationship between spot and term prices, as utilities could always rely on inventory releases to fill short-term supply gaps. However, the market is shifting to being production-driven – and the impact on both spot and term pricing mechanisms is becoming more profound.
In September 2022, long-standing industry consulting firm, UxC, declared the “Era of Excess Uranium Inventory was Over”.
While inventories remain substantial at over 1 billion pounds U₃O₈, these reserves are now predominantly in “strong hands” – utilities, fuel processors, and national nuclear programs, with China alone holding an estimated 650 million pounds U3O8. These stockpiles are unlikely to return to the open market, further tightening long-term supply.
This shift has profound implications. For the first time in generations, the uranium market is transitioning from being inventory-driven to production-driven – and production isn’t keeping pace with demand.
The depletion of accessible uranium inventories coincided with another critical trend: after the Fukushima disaster in 2011, utilities significantly reduced their new term agreements, opting instead to rely on existing contracts and stockpiles. This reduced contracting activity widened the production-consumption deficit – now estimated at 1.5 billion pounds U3O8 since 1990.
With reactor demand stable at around 175 million pounds U3O8 annually, production still falling short, and nuclear fuel security becoming a geopolitical priority, utilities will increasingly return to the term market to secure future supply, signalling a significant inflection point for uranium pricing.
Despite its near-term nature, the spot price remains the most visible indicator of uranium pricing and often drives market sentiment.
However, it is the relationship between spot and term prices that offers a deeper insight into the market’s overall direction.
Traditionally, term prices maintain approximately a 10% premium over spot prices, reflecting the value utilities place on supply security.
However, industry expert TradeTech notes that “term market fundamentals have evolved such that the term market today exhibits its own distinct characteristics, which in turn, has a stronger influence on overall price movement.”
`As utilities continue to lock in long-term contracts at higher prices, the spot market will eventually follow suit. The spot price is unlikely to remain detached indefinitely.
For investors, an increasing divergence between spot and term pricing presents both challenges and opportunities. While spot prices can move quickly based on sentiment, it is important to consider its relationship to the term market – which often more comprehensively reflects the real-world supply-demand balance.
As utilities increasingly re-enter the term market to secure future supply, the gap between spot and term prices is expected to diminish, driven by fundamental scarcity rather than short-term speculation.
With the era of excess uranium inventory behind us and supply deficits growing, the market is entering a new phase. Securing long-term supply is no longer optional – it’s a necessity for utilities.
This makes the case for strategic exposure to physical uranium stronger than ever.
At the same time, governments around the world are increasingly turning to nuclear power to meet energy security and decarbonisation goals. With more projects getting the green light, and existing fleets extending their lifespans, uranium demand is set to rise further – adding even more pressure to an already tightening market.
While the term market is a significant driving force behind uranium pricing, the spot market will remain a key indicator. And as long-term prices continue to climb, the spot price is likely to follow – gradually closing the gap as the supply-demand imbalance intensifies.
This is a market poised for significant change. Those who position themselves effectively now stand to gain the most.
As I first wrote about it my view of the uranium market in October 2024, the rise of nuclear energy is continuing to gain momentum into 2025. As many trends go, what we first saw in the US is now being reflected across the Atlantic: the UK’s nuclear energy sector is set for a significant overhaul as it seeks viable paths to meet rapidly increasing energy demand driven by the uptake of AI and datacentres alongside its ambitious net zero targets. As the resurgence of nuclear continues across the UK and rest of the world, this is likely to trigger a parallel rise in uranium demand.
This regulatory shift aligns with the UK’s broader ambition to expand its nuclear capacity, reinforcing its role in the global nuclear resurgence. As the UK and others seek to replace fossil fuel-based generation with cleaner alternatives, the UK’s proactive stance on nuclear could serve as a model for other nations grappling with similar regulatory bottlenecks. If these reforms are successfully implemented, they could not only revitalize the UK’s nuclear industry but also have far-reaching implications for the global uranium market.
The resurgence of nuclear energy seen throughout the course of 2024 has been driven by its growing role in achieving global decarbonization targets and ensuring energy security. At COP29 in Azerbaijan, the “Declaration to Triple Nuclear Energy” gained further traction, with six additional countries joining as signatories, bringing the total to 31. This acknowledgment of nuclear energy’s essential role in a net-zero future is a significant milestone.
September was an important month for the nuclear energy sector, with developments around the globe pointing to the rapid revival of an energy source once sidelined due to safety and cost concerns.
This month I wanted to look at one of the main factors driving this revival: namely the rise of hyperscale datacentres and artificial intelligence (AI).
As technology giants such as Microsoft and Amazon look to power hugely energy-intensive infrastructure while balancing carbon reduction goals, it has sparked a resurgence of interest in nuclear. And as a result, the uranium market is seeing a parallel rise in demand.
Data centres, which power the modern digital world, are voracious consumers of electricity. The development of AI algorithms, machine learning models, and cloud-based services is also leading to a surge in energy demand.
After five years lying dormant, Three Mile Island in Pennsylvania was thrust back into the spotlight last month, following news that Constellation Energy is to restart and refurbish the 835 Mwe site. The decision, bolstered by a 20-year power off-take agreement with Microsoft, highlights the alignment between corporate climate goals and nuclear energy development.
Additionally, the rise of Small Modular Reactors (SMRs) represents a new frontier in nuclear technology. Oracle’s plan to power a gigawatt-scale data centre with three SMRs further illustrates how the private sector is increasingly leveraging nuclear energy for large-scale, carbon-neutral power solutions to meet this growing demand.
Multiple countries, particularly those in Asia and the Middle East, are expanding their nuclear programmes. South Korea, for example, has issued construction licenses for new reactors, signaling a reversal of its previous nuclear phase-out policy. Meanwhile, in the U.S., the Department of Energy’s analysis suggests that substantial new nuclear capacity could be built on existing and retired nuclear sites, further boosting demand for uranium.
Investor sentiment towards uranium and nuclear energy has also shifted positively. A group of major international banks, including Bank of America, Goldman Sachs, and Morgan Stanley, recently expressed support for the expansion of commercial nuclear power. This endorsement from the financial sector could lead to increased capital flows into nuclear projects, both conventional and SMR-based, further driving uranium demand.
Moreover, nuclear energy offers an essential advantage in the race to meet climate goals. The International Atomic Energy Agency (IAEA) projects that global nuclear capacity could increase by 2.5 times by 2050 to reach 950 gigawatts-electric (GWe), fuelled by the urgent need to decarbonize the global economy. SMRs, in particular, are gaining attention because they can be built faster and at a lower cost compared to traditional reactors, making them a flexible and scalable option for industrial energy users like data centres.
This nuclear revival has triggered a corresponding increase in uranium demand. The global uranium spot market saw stable activity in 2024 to date, with prices rising to $81.75 per pound in September, marking an increase of $3.75 from August. Forward prices are also continuing to strengthen, signalling the market’s reaction to pending green-fields uranium developments which will only occur at higher price levels.
Despite the optimistic outlook, the uranium market is not without risk, not least the obvious geopolitical factors, such as Russia’s role in the global nuclear supply chain, which could create supply disruptions, potentially driving prices higher but also causing market volatility.
As data centres multiply and AI continues to expand, the role of nuclear energy—and by extension, uranium—is poised to expand, perhaps significantly.
I remain positive on the outlook for uranium, bolstered by the global push for clean energy, expanding nuclear programmes, and strong investor interest.
Copyright © 2023
