Can the Upward Trend in Uranium Prices Continue After Breaking the $100 Barrier?

Kazakhstan's Kazatomprom, the world's leading uranium miner, has signaled potential curtailments in its 2024 production forecast due to constraints in the availability of sulfuric acid in January. Kazatomprom accounts for over one-fifth of the world's production. The announcement spurred demand, driving a 15% spike in uranium prices this month to $106/lb on Jan 22, a high not seen since November 2007.

Source: Trading Economics, as of Jan 22

Citi analysts, in a report published Monday, envision a balanced uranium market by 2030, with prices at $101/lb in 2024, rising to $110/lb by 2025. This outlook is underpinned by a steady phase-out of Russian uranium, ongoing mining issues in Kazakhstan and Niger, and an eventual alignment of supply with demand, representing the base case scenario.

In an optimistic scenario with a 25% likelihood, uranium prices could climb to $115/lb in 2024 and $129/lb in 2025, driven by a comprehensive ban on Russian uranium, Western purchasing challenges, and persistent production difficulties in key regions.

Conversely, in a bearish outlook with a 20% probability, prices might level at $85/lb for 2024-2025, influenced by a global economic slowdown, continuous Russian uranium flow, advanced production of Western LEU and HALEU, and a recovery in mining output from Niger.

Kazatomprom may see a production decline this year due to a sulphuric acid shortage, a key component in its operations. A regional shortage, intensified by agricultural and industrial demand and market scarcities, has resulted in the company securing insufficient sulphuric acid. Despite seeking alternative supplies, Kazatomprom anticipates challenges in meeting its 90% production target for 2024.

In addition to sulphuric acid supply challenges, despite the company committing to fulfilling its 2024 delivery obligations, Kazatomprom's 2024 outlook is impacted by construction delays in new mining projects.

Moreover, global supply chain issues are highlighted. The alternative trans-Caspian route for transporting Kazakh uranium to the West, bypassing Russia, lacks consistency and has faced past delays. Customers like Cameco have attempted this route due to sanctions risk and insurance difficulties.

Uranium exports from Niger have halted since July's military takeover. Orano of France has closed its Niger facility. Relying on nuclear for 70% of its electricity, France faces supply issues, having received no new uranium shipments from Niger since last year's coup. If unresolved, France must seek alternative suppliers. President Macron has courted Kazakhstan, Mongolia, and Uzbekistan for new uranium supply partnerships.

The US House has passed a bill to prohibit Russian uranium imports in last December, now awaiting Senate review. Sprott Asset Management CEO John Ciampaglia said, "US legislative efforts to finally sanction Russian nuclear fuel services appear to be imminent and could prompt retaliation by Russia," Ciampaglia said. "While uranium is the building block, conversion and enriched uranium are important steps in the fuel cycle. With Russia controlling meaningful percentages of global capacity in both conversion and enrichment, risk mitigation strategies by the West are underway with the reshoring of the supply chain."

The Biden administration subsidizes the domestic industry to rebuild the enrichment and conversion supply chains, allocating around $500 million for HALEU production. Currently, commercial-grade HALEU fuel is predominantly sourced from Russia. HALEU (High-Assay Low-Enriched Uranium) is crucial for a new generation of reactors developed by companies such as X-energy and TerraPower, which are also developing SMR (Small Modular Reactor) technologies. However, the production of HALEU has been hindered by the fact that these reactors have not yet been constructed.

Paul Goranson, CEO of enCore Energy, predicts a persisting supply-demand gap, anticipating an even tighter situation in 2024. Despite the restart of some mines and the initiation of production in others, he asserts that the supply ramp-up is lagging, emphasizing the significant effort and capital required to establish it.

However, analyst Tom Price from Liberum forecasts a reduction in the uranium shortfall, projected to drop to 300,000 lbs in 2024 from 1.1 million lbs in 2023, with demand rising to 174.7 million lbs from 170.4 million lbs. He acknowledges potential for price increases but anticipates that Kazatomprom and Cameco will reawaken idle mines to protect their market position and prevent new competitors, expecting restarts within this and the following year.