Uranium Week: Capitulation Near The Bottom?

Weekly Reports | 10:00 AM

Tariff uncertainty, geopolitics and a global risk off tone all weighed down uranium market activity last week.

-Could the years ahead see supply overwhelming demand for yellow cake?
-Geopolitics, tariffs and Risk Off sentiment rumble the spot uranium market
-(Most) analysts agree uranium stocks on the ASX are undervalued

By Danielle Ecuyer

Spot Price and Long-Term Uranium Market

The dislocation between the short-term weakness in the uranium spot price and the longer-term outlook for demand/supply against what is often described as the "nuclear (energy) renaissance" came yet again into focus last week.

UBS expects nuclear power generation to expand strongly due to robust demand dynamics for clean energy. COP28 detailed a scenario under which nuclear power would triple out to 2050, necessitating over 30 new reactors per annum from 2030.

The last time this level of development occurred was during the Cold War. UBS anticipates nuclear generation to rise over 87% by 2040 from 2023 levels, which will require uranium supply of around 50kt by 2035.

To support the broker's forecast, there are around 70 proposed projects spread across the globe with an inferred uranium incentive price of US$77/lb.

While positive on the longer-term outlook and post an upgrade in the U308 price forecast by 10% to US$77/lb, UBS is more sanguine on near-term dynamics. Despite a decline in the price by around -30% to circa US$65/lb, the broker believes supply looks poised to exceed demand until the early 2030s.

Supply increases are attributed to the ramp-up of numerous large projects, the restart of existing projects such as Paladin Energy's ((PDN)) Langer Heinrich mine, and three new projects in development, including NexGen Energy's ((NXE)) Rook project.

Diverging Views on the uranium market

Ord Minnett has a different perspective on the outlook as this broker initiates coverage on the sector with the view that a structural supply deficit has emerged and will not be resolved until 2034.

Unlike UBS, which has downgraded its short-term U308 price outlook by -17%, Ord Minnett believes the price can be maintained above US$85/lb from 2026-2030, including a peak at US$101/lb by 2028 due to supply shortfall and utilities' need to rebuild inventories.

While uranium market aficionados might appreciate the structural aspects of the demand/supply cycle, the layperson's understanding might benefit from a brief overview of how the market works.

Ord Minnett explains long-term uranium suppliers do not consider the spot U3O8 market as representative of true market dynamics. Spot transactions are one-off deals, usually in relatively small volumes, that are settled within six months.

Trading is often light, and some 80% of the buyers are investors (funds), small miners, and intermediaries rather than consumers. Prices can be volatile and more sensitive to economic or geopolitical news rather than the underlying demand from utilities.

Yet, it is the stock market observers who watch the spot price, and often trading positions and stock prices will trade more akin to the U308 spot price than the underlying fundamentals of the commodity across a more medium-term outlook.

E&P (also known as Evans & Partners) is another broker to initiate coverage on uranium stocks and the sector and, like UBS, this broker anticipates a "modest" supply surplus to develop in the next few years, but much is dependent on the ramp-up of new supply from Kazakhstan and Africa between 2025-2027.

The two regions are expected to represent around 70% of additional primary supply over the next two years. Kazatomprom is the main supplier, with E&P forecasting an additional 6mlbs of U3O8 in 2025 plus an additional 8mlbs in 2026, with supply from Inkai and Budenovskoye. These forecasts are not without potential challenges, including shortages of sulphuric acid used in the production process.

Turning to the demand factor, E&P embraces the "nuclear renaissance" narrative with a dose of reality. The analyst depicts challenges for new builds and the five-to-ten-year development timeline, while restarts are relatively "limited" in number.

The great nuclear generation hope, small modular reactors, are most likely a 2030s story due to an absence of commercial technology at this stage.

E&P incorporates a US$70/lb long-term uranium target price, which is highlighted as US$5/lb-US$10/lb higher than long-term demand prices were around three to five years ago. The revised forecast reflects inflation costs for uranium supply and a more upbeat outlook on nuclear energy supply and demand.

Retail investors give up on uranium stocks

Petra Capital believes retail investors have "capitulated" on uranium stocks, with the spot price down -40% from the high of US$107/lb in February 2024. General pessimism has not migrated onto the long-term uranium price, which has risen by 8% over the same period.

Like Ord Minnett, Petra draws a sharp contrast between the long-term contracts (market) and the spot market, with volumes of 102mlbs for the former versus 36.7mlbs for the latter, or 26% of the volumes sterm from the spot market.

Negativity around the sector is not believed to be representative of the true outlook and state of the uranium market. Commentary from Cameco infers to the broker only 7mlbs of purchases in the spot market were undertaken by utilities, not more than 6% of total utility volumes.

Ord Minnett believes utilities have been running down inventories, and contracting activity will accordingly pick up towards the end of the decade.

Petra has a longer-term uranium incentive price target of US$95/lb.

U308 spot market impacted by uncertainty

Industry consultants TradeTech point to another quiet week in the U3O8 spot market, with four transactions undertaken for 400klbs in volume. The consultant's spot price indicator declined by -US$1.25/lb to US$63.25/lb, against the Mid-Term price indicator at US$71/lb, and the Long-Term price indicator at US$80/lb.

The risk-off tone in US equity markets and uncertainty over the direction of the Trump administration's tariffs and escalating global trade tensions are not assisting sentiment in the spot market. President Trump's position on Russia is also seen as offering mixed signals to the markets.

Both buyers and sellers are not disposed to adopting a position until there is more clarity around how tariffs on Canada and possibly sanctions on Russia impact imports of nuclear fuel to the US.