Uranium Week: Uranium Price Breaches US$100

Weekly Reports | Jan 16 2024

This story features SILEX SYSTEMS LIMITED. For more info SHARE ANALYSIS: SLX

Multiple factors are combining to drive the uranium spot price higher, and brokers expect demand will continue to outstrip supply.

-The U3O8 spot price breaches US$100/lb for first time since 2007
-Supply and demand imbalances behind the rally, suggests Morgan Stanley
-Tight conditions in the uranium, conversion and enrichment markets

By Mark Woodruff

Uranium prices continue to surge, with industry consultant TradeTech’s weekly spot price indicator rising by US$12/lb to US$104/lb. This new level is a 107% increase compared to the second week of January in 2023.

Despite the recent rally, Canaccord Genuity remains positive on the outlook for uranium prices, believing the market remains in a structural deficit, and expects tight conditions to persist. 

While demand is durable, supply is as fragile as ever, according to the broker, and any further supply disruptions could lead to panic buying by utilities, given inventory levels are already low at US and European utilities.

April 2007 was the last time the uranium spot price breached US$100/lb, and TradeTech points out the indicator reached its historical peak at US$138/lb two months later. After accounting for inflation, it’s noted that level is equivalent to US$203.20/lb in today’s dollars.

Several factors have combined to push the spot price higher in the last week including news from Kazatomprom (the world’s largest producer and seller of natural uranium) it would likely deliver lower than expected production due to ongoing construction delays and a shortage of sulphuric acid used in the uranium extraction process.

Additionally, tensions in the Middle East have raised fears over the security of shipments through the Suez Canal. TradeTech suggests alternative routes could present a cost and time penalty for uranium shipments. 

Term uranium market

Sellers have become increasingly bullish in the term uranium market, according to TradeTech, after the recent rise in the spot uranium price, along with the announcement by Kazatomprom. 

These two factors have combined with concerns around a disruption to upcoming deliveries from Russia following the passage by the US House of Representatives to ban all deliveries of Russian nuclear fuel to the US. These concerns are affecting the conversion market as well as the uranium and enrichment markets, explains TradeTech.

While many utilities have taken action to reduce their risk in the event of a disruption in Russian supply, TradeTech believes there will be unforeseen logistical and delivery difficulties for some parties, especially until the process for the waiver option (included in the legislation) is clarified. 

TradeTech’s term price indicators remain at US$93/lb (mid-term) and US$68/lb (long).

Long-term contracting volumes during 2023 were the highest since 2012, as utilities were increasingly focused on security of supply, notes Morgan Stanley. It’s now believed nuclear plant life extensions in Europe, and new start-ups elsewhere, will ensure an ongoing upward trend in volumes for long-term contracts.

This broker suggests the current spot price rally is being driven by real supply and demand imbalances given much less recent activity by physical ETFs such as the Sprott Physical Uranium Trust, compared to 2021 and 2022.

The analysts also highlight a tightening supply side.

Apart from Kazatomprom’s recent update, last year there was the July military coup in Niger (which supplied around 25% of the EU's uranium needs in 2022), and Cameco's September downward revision to 2023 guidance.

Enrichment 

With potential significance for ASX-listed laser enrichment technology company Silex Systems ((SLX)), both the UK and US have recently announced plans for high-assay low enriched uranium (HALEU) to feed the next fleet of nuclear reactors. 

These reactors will run on 5-20% enriched uranium, as opposed to the current less than 5% enrichment, explains Morgan Stanley. In the US, the Department of Energy has issued a Request for Proposal (RFP) for uranium enrichment to supply HALEU domestically, while the UK has also allocated GBP300m to develop production. 

HALEU fuel (which is currently only produced in Russia) can be produced either by down-blending high-enriched uranium, or enriching U308.

While advancements are being made to establish a reliable domestic supply of HALEU, TradeTech notes the enrichment market remains under pressure due to uncertainty resulting from recent legislative action taken by the US House of Representatives banning imports of Russian enriched uranium product (EUP). 

According to TradeTech, many market participants expect the US Senate will eventually pass similar legislation.

Uranium companies listed on the ASX:

ASX CODE DATE LAST PRICE WEEKLY % MOVE 52WK HIGH 52WK LOW P/E CONSENSUS TARGET UPSIDE/DOWNSIDE
1AE 15/01/2024 0.1700 54.55% $0.18 $0.05
AGE 15/01/2024 0.0800 36.84% $0.08 $0.03 $0.100 25.0%
BKY 15/01/2024 0.3200 1.69% $0.80 $0.26
BMN 15/01/2024 3.6000 25.09% $3.72 $1.19 $3.200 -11.1%
BOE 15/01/2024 5.5600 20.52% $5.56 $2.02 93.9 $4.763 -14.3%
DYL 15/01/2024 1.4700 28.33% $1.55 $0.48 $1.640 11.6%
EL8 15/01/2024 0.5700 23.91% $0.61 $0.27
ERA 15/01/2024 0.0700 40.48% $0.30 $0.03
LOT 15/01/2024 0.3400 11.67% $0.35 $0.15 $0.530 55.9%
NXG 15/01/2024 11.7700 19.96% $12.35 $5.11
PDN 15/01/2024 1.3000 22.17% $1.33 $0.52 205.8 $1.190 – 8.5%
PEN 15/01/2024 0.1400 38.30% $0.20 $0.08 $0.250 78.6%
SLX 15/01/2024 5.2400 31.36% $5.39 $2.92 $5.800 10.7%

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

SLX

For more info SHARE ANALYSIS: SLX - SILEX SYSTEMS LIMITED