What happened

Uranium stocks were back on the rise Tuesday after several down weeks, with names across the sector surging as the session progressed. Here's how much the top-performing uranium stocks had rallied at their highest points in the trading day:

  • Energy Fuels (UEC -1.34%): Up 12.8%.
  • Uranium Energy (UUUU -0.63%): Up 10.2%.
  • Denison Mines (DNN 0.54%): Up 10.1%.

Uranium prices have dropped in recent weeks, and they aren't ticking upward yet. So why were uranium stocks starting to rebound? Three reasons: investor sentiment, fossil fuels, and encouraging activity in the crucial uranium contract market.

So what

Uranium prices are currently hovering near two-month lows, according to data from TradingEconomics.com. Prices hit 11-year highs of $64.50 per pound in mid-April, but started to fall soon after as rising interest rates triggered fears that an economic slowdown in the U.S. was coming, while demand from China was expected to fall due to the COVID-19 lockdowns it imposed on major urban areas. Uranium prices were trading one notch below $50 per pound at last report.

Spot prices, however, don't really drive demand for uranium. Utilities are major consumers of the commodity, and they typically buy it under long-term contracts from miners at negotiated prices, not at spot prices.

TradeTech, an independent provider of uranium prices and news, just revealed that utilities contracted more than 1 million pounds of uranium last week at a price of $61 per pound for mid-term delivery, as reported by Australia-based digital publisher FNArena. The long-term contract price is around $52 per pound.

An aerial view of a running nuclear power plant station with two nuclear reactors.

Image source: Getty Images.

If these numbers are anything to go by, utilities that have waited long enough for uranium prices to cool are apparently returning to the contract market now. This should eventually support demand for (and prices of) uranium.

Meanwhile, Russia's war in Ukraine continues to rage, and as long as it goes on, the threat of the U.S. banning uranium imports from Russia will continue to loom. Such a ban could hit the domestic uranium supply hard since Russia and its allies Kazakhstan and Uzbekistan are key suppliers of uranium used to generate power in the U.S. Nuclear power accounts for almost 20% of the nation's total electricity generation.

The war also continues to wreak havoc in the energy markets, with prices of fossil fuels high and inching higher. While oil prices have hit multiyear highs in 2022, natural gas prices have more than doubled this year and were up more than 4% on Tuesday as of this writing.

These unprecedented surges in oil and natural gas prices are forcing nations to rethink their energy security plans, look for ways to reduce their reliance on fossil fuels, and give greater consideration to alternative sources of energy, including nuclear. The European Union, for example, has proposed to ban all crude oil imports and two-thirds of gas imports from Russia. Experts now believe uranium could next be on the EU's radar.

Now what

Russia's invasion of Ukraine has led to a more favorable environment for the uranium market and uranium stocks. Energy Fuels, which just reported its quarterly numbers, believes higher uranium prices should be sustained, and induce "utilities to enter into more long-term contracts with non-Russian producers," such as miners based in the U.S.

To be sure, Energy Fuels has yet to start extracting uranium, but has been buying the metal at spot prices to sell later. On May 16, the company said it had nearly 700,000 pounds of uranium in inventory ready for sale, and that it is already pursuing opportunities to sell in the spot market as well as to utilities under contracts. The prospect of Energy Fuels finally generating meaningful revenue from uranium is another reason why the stock was such a strong performer Tuesday.