Uranium prices have touched multi-year highs but the rally looks unsustainable into 2022, Morgan Stanley says

uranium mine
  • Uranium prices have climbed 60% in four weeks as an investment fund embarked on a buying spree.
  • Morgan Stanley commodity strategists say it may be hard to maintain robust investment demand into 2022.
  • The Sprott Physical Uranium Trust has purchased a massive 1.45 million pounds since mid-August.
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Uranium prices have shot up about 60% over the past month on the back of big purchases of the nuclear-energy element by an investment fund, but the rally is likely to lose steam next year, Morgan Stanley said this week.

Spot prices for uranium were at 2021 lows in August before they started advancing toward what’s become a 58% gain in four weeks. The price traded above $47 on Friday and this week touched $50 for the first time since 2012, according to S&P Global Platts. Morgan Stanley’s commodity strategists in Europe said the Sprott Physical Uranium Trust is the driving force behind resurgent interest in uranium. The Canada-based fund is the only one that holds the physical commodity rather than futures contracts.

Stronger investment demand for uranium is adding to a spot market that’s already been active because of disruptions in mine supplies by the COVID-19 pandemic. The price rally has further to run but strategists Marius van Straaten and Susan said they are “not yet convinced” it can be sustained into 2022 as investor demand could struggle to maintain momentum.

The Sprott uranium trust has been on a uranium buying binge in the spot market since mid-August following its inception in July. The fund has bought a total of 27.7 million pounds of the radioactive element, including Thursday’s massive purchase of 1.45 million pounds of so-called yellowcake.

The trust’s investment case for uranium includes its view that nuclear energy is a clean and efficient power source that’s gaining favor among policy makers worldwide who are trying to reach carbon-reduction targets.

“It needs to be seen how long the current rate of investment demand can be maintained, but some bulls argue that we won’t see the price dipping if fund buying slows, as improved market liquidity has aided price discovery and revealed the ‘true’ spot price,” said Morgan Stanley.

“On the other hand, better visibility of previously hidden uranium stocks could become an overhang to the market, with outflows from physical funds also a potential risk,” the strategists added.

Morgan Stanley said uranium has joined a wider price rally in natural resources. But while “coal and natural gas prices are driven up by actual market tightness, uranium’s underlying supply-demand fundamentals haven’t meaningfully changed over the last few months to warrant this price surge.”

The World Nuclear Association sees a balanced market until 2028 through drawdowns in utility inventories and idled-mine supply returning, with the latter requiring that prices rise first. Industry consultancy UxC projects a drawdown in global inventories of as much as 30 million pounds a year.

“Only when these utility inventories are worked off materially, the real need for a higher price to incentivize the return of idled supply will become more pressing, we think,” said Morgan Stanley.

The commodity strategists remain bullish on uranium in the medium term and forecast a price high of $49 a pound by 2024. “That said, the current investor-driven rally might not seamlessly transition into a ‘real’ deficit-driven bull market, and we could see some price weakness in between.”

Meanwhile, uranium stocks “finally got noticed by retail investors this week,” said Vanda Research, which monitors trading activity among retail investors.

“Purchases were concentrated in the Global X Uranium ETF and Cameco, which also experienced a sharp rise in call volumes – a sign that speculative retail investors are chasing the momentum,” it wrote this week. Cameco is a Canadian uranium producer.

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Prices of metals like copper and iron ore are collapsing on growth worries and Chinese steel curbs after soaring on hopes of a swift economic recovery

Copper
An employee produces copper wires at Nanjing Gree Electric Enterprise Co in China.

  • Copper and iron ore prices have been knocked down sharply in August after steadily running higher since early 2020.
  • Iron ore prices have lost nearly 30% on demand concerns and China’s orders to curb steel production.
  • “Dr. Copper” as a barometer of economic health is being hurt while COVID cases ramp up.
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Copper and iron ore prices have been slammed this month by demand worries as the coronavirus crisis wears on, while iron ore faces industry-specific pressure as China demands curbs on steel production, prompting questions about whether prices for the industrial metals can return to highs for the year.

Benchmark iron ore prices with 62% iron content in August have tumbled roughly 26% to trade above $156 per metric ton, driving to levels not seen since February. Copper has dropped more than 8% to fetch about $4.111 per pound, the lowest in about four months.

The downward slope comes after prices for the metals had been climbing since March 2020 when they dropped alongside a crash in US stocks as the COVID-19 pandemic threatened to push economies worldwide into recession.

“If you think about from the March 2020 S&P 500 market low to the first half of this year, you saw copper just continue to go higher and that argument of strong metals like copper and strong markets made sense because higher copper prices imply economic growth and economic activity and a need for copper,” David Keller, chief market strategist at Stockcharts.com, told Insider.

Iron ore like copper is an important industrial metal as it is a key raw material used to make steel. Production volume of about 2 billion tonnes and export volume of around 1.5 billion tonnes makes iron ore the third-largest commodity in terms of production volume after crude oil and coal, and the second-most traded commodity after crude oil, according to the World Steel Association.

The rollout of COVID-19 vaccinations along with worldwide fiscal and monetary policy stimulus efforts have helped support the upswing in prices for the metals. But investors appear to be growing more cautious about the outlook for continued economic recovery as coronavirus cases increase on the back of the highly transmissible Delta variant.

Meanwhile, the US Federal Reserve appears on the path this year toward reducing the emergency asset purchases it put in place to help the economy weather the COVID crisis, a worrisome prospect for some investors who see the central bank’s asset purchases as fostering economic recovery and stoking demand for industrial metals like copper as building projects restart or get underway. Supply constraints had also helped pull up copper prices this year.

For iron ore, Bank of America this week said prices have peaked in part as supply has been catching up with demand. It noted that steel production in China had posted a run of seasonal highs since June 2020 largely because of a rebound after the start of the COVID pandemic.

“That said, output growth has been slowing,” driven by a confluence of factors, said BofA commodity strategists led by Michael Widmer. “Looking at demand first, growth has been grinding to a halt, as activity has become patchier, with construction and automotives particular headwinds.”

As well, the Chinese government has ordered steel mills to limit production in part to cut down on carbon emissions. It also changed tax incentives in May and July in an effort to better control steel production.

“This matters [as it] removes the incentive to run steel mills for exports,” said the strategists.

Moves that could revive iron ore prices include renewed stimulus measures in China and steel restocking ahead of the winter Olympics, which could prompt further mill closures to contain emissions, said BofA.

Keller at Stockcharts.com said the price of copper this week tested the 200-day moving average of $4 per pound, the first such test since June 2020.

“That whole idea of the infrastructure trade – industrials and machinery names — is really coming off here. While I see that as a long-term play, certainly in the short term weakness in copper is agreeing that it’s not an ideal time to make that bet,” Keller said.

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The price of a steel product used in cars and construction hit an all-time high as Biden marches forward with $579 billion infrastructure plan

FILE PHOTO: A worker cuts a steel coil at the Novolipetsk Steel PAO steel mill in Farrell, Pennsylvania, U.S., March 9, 2018. REUTERS/Aaron Josefczyk
FILE PHOTO: A worker cuts a steel coil at the Novolipetsk Steel PAO steel mill in Farrell, Pennsylvania

  • The price of a key steel product used in construction and car manufacturing hit a record high Monday.
  • Hot-rolled coil for July delivery rose as much as 0.7% to a record $1,801 a short ton in New York after more than tripling over the last year.
  • Investors are betting Biden’s infrastructure spending on roads and bridges will boost steel demand.
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The price of a key steel product used in construction and car manufacturing hit a record high Monday as Biden marches ahead with his infrastructure spending plan.

Hot-rolled coil for July delivery rose as much as 0.7% to a record $1,801 a short ton in New York. Prices are up roughly 2.6% after the president secured a bipartisan infrastructure deal on Thursday.

Prices have more than tripled over the last year a part of a broader commodities rally. Investors have also bid up copper and iron ore in a bet that massive US spending to rebuild railroads, highways, and bridges will boost demand for metals.

On Thursday Biden threw his support behind a $1 trillion infrastructure deal negotiated by a group of Senate Republicans and Democrats. The framework, made public on Thursday after the White House meeting, includes funding for physical infrastructure such as roads and bridges. About $579 billion would constitute new spending beyond existing programs.

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Metal prices sink after China says it has zero tolerance for the commodity hoarders driving costs higher

iron ore
Visitors examine iron ore pellets produced by the LKAB mine in Kiruna, a mining town in the Swedish Arctic March 30, 2015.

  • Metals prices dropped Monday after China announced a strategy that could crack down on commodity hoarders who are driving costs higher.

  • Chinese steel rebar futures closed 2.7% lower and iron ore dropped 3%, according to Bloomberg data.
  • China will show “zero tolerance” for monopoly behavior and hoarding, said a report from the National Development and Reform Commission.
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Metals prices dropped Monday after China announced a strategy that could crack down on commodity hoarders who are driving costs higher.

Chinese steel rebar futures closed 2.7% lower and iron ore dropped 3%, after earlier being down more than 7%, according to Bloomberg data.

To push back against soaring commodities prices, China will show “zero tolerance” for monopoly behavior and hoarding and will continue to increase law enforcement inspections and investigate abnormal transactions, said a report from the National Development and Reform Commission.

The report was released after China summoned executives from top metals producers and officials from multiple government departments to talk about iron ore, steel, copper, and aluminium on Sunday.

The NDRC said that “excessive speculation” has disrupted the normal production and sales cycle in commodities and contributed to price increases. According to Bloomberg, the NDRC started warning about higher raw-materials prices in April.

Aluminum dropped 1.09% to $2,370 a ton on the London Metal Exchange. Copper was down 1.66% to $9,881 a ton.

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