US Facing Bleaker Outlook On Uranium Supply
The looming supply deficit in uranium is worsening, based on recent developments affecting both the demand and supply side of the market.
On the demand side, the US plans to triple its nuclear capacity by 2050, adding 200 gigawatts more nuclear-generated power. Given that the US already consumes 1000 times the uranium it produces, the US faces a daunting challenge in securing a reliable supply to power this expansion.[1]
On the supply side, recent developments in Central Asia and Russia have curtailed the global production outlook.?? The world’s largest uranium producer, Kazakhstan-based Kazatomprom (43% of global production[2]) has revised its 2024 production forecast downward, citing shortages of sulfuric acid, delays in mine construction, and an increase in mineral extraction tax (MET). ?For 2025, Kazatomprom has cut its uranium production guidance for 2025 by 11 million pounds.[3][4].? This represents a loss of about 7% of annual global supply.[5]
Geopolitics may throw a further curveball at US utilities.? Kazatomprom’s CEO Meirzhan Yussupov has stated that sanctions caused by the war in Ukraine have made it “much easier for us to sell most, if not all, of our production to our Asian partners — I wouldn’t call [out] the specific country?.?.?.?They can eat up almost all of our production or our partners to the north,” he told the FT.[6]?
Further, Russia is now weighing in with potential uranium export restrictions, further clouding supply availability to the West. In a recent government meeting, Putin suggested possible restrictions on uranium exports, which could further disrupt the global supply chain.[7]
As such, the US faces a potential double hit: i) less available supply globally and ii) western buyers at “at the back of the line" when it comes to accessing supply from two critical producers.
There are immediate implications for the uranium market;
Firstly, as the global demand/supply balance tightens further, a sharp price response for uranium can be anticipated.? With the current spot price around US$80 / lb, uranium is well below what many industry participants consider as the incentive price for new production. Only sustained higher uranium prices can trigger new production commitments that, on a lagged basis, will begin to address the supply deficit.?
Second, to ensure continuity of supply, US utilities will strongly favour supply sourced from the US or its allies. As such, a "US-friendly” supply could attract a premium price relative to global benchmarks. Many expect listed uranium producers in these jurisdictions will be awarded valuation premiums.
Third, valuation premiums are already evident for listed uranium producers with restart or shovel-ready projects capable of coming on stream in the current price/demand cycle.? As the extent of the supply shortage becomes more widely appreciated, this premium for restart or shovel-ready projects can be expected to widen. ?
If the dynamics in the uranium market and its associated opportunities are of interest, please feel free to connect with David Franklin .? ?
Otherwise, please like, comment, or share your thoughts below.
?
Risk Disclosure Statement:
This material is provided for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security or to adopt any investment strategy. Market conditions and economic factors may change rapidly, and there is no assurance that the views expressed in this commentary will be accurate or profitable. Past performance is not indicative of future results. Investing involves risks, including loss of principal, and readers should carefully consider their investment objectives and consult with a financial professional before making any decisions. This commentary is subject to change without notice. Integral Wealth Securities LLC assumes no responsibility for any loss that may result from reliance on this information.
?
[1] See my previous article (https://www.dhirubhai.net/pulse/2-down-198-go-how-us-fuel-expansion-04yvc/?trackingId=hFnQRCAJVYMi6oyDJ2fKKw%3D%3D)
[5] Cameco estimates 2024 world production at 155 million pounds of uranium