By Myra P. Saefong
Next year could see a tight global uranium-supply market get even tighter
The world's largest uranium producer slashed its 2025 production plans last week, marking what one analyst referred to as the "most meaningful change" to supply announced this year.
That threatens to trigger even tighter supplies for nuclear fuel in the months to come - lifting prices.
At 40% of global supply, National Atomic Company Kazatomprom (UK:KAP) (NATKY), or KAP, is the largest uranium producer in the world and it has a "meaningful impact on the entire industry," said John Ciampaglia, chief executive officer of Sprott Asset Management.
On Friday, KAP lowered its production plans for next year, cutting its uranium-output forecast to between 25,000 and 26,500 metric tons of elemental uranium, or tU, from its initial "intention" for a volume of 30,500 to 31,5000 tU. The new forecast would still represent about 12% growth above the company's 2024 guidance.
"The most meaningful change to supply so far this year has been the reduction in planned production by Kazatomprom," said Ciampaglia. The Kazakhs have "signaled that 2025 will be 17% lower than prior guidance, and 2026 remains uncertain."
Lower output forecast
In a press release, KAP said it previously warned that, if limited access to sulphuric acid continued throughout this year, and if it didn't catch up with the construction works schedule at the newly developed deposits in 2024, the company's 2025 output plan would likely be affected.
Now, "continuing uncertainty in relation to sulphuric acid supplies for 2025 has significantly impacted the company's 2025 production plans," it said.
KAP's choice to cut production will have an "outsize impact on [the] global supply [of] uranium," said Nicholas Codola, senior portfolio manager at Brinker Capital Investments. Ultimately, the magnitude of the impact depends on how other companies and countries respond to these cuts, he said, pointing out that Canada has been ramping up mining production over the decade and "really put it into overdrive the last few years."
Kazakhstan also recently implemented new tax measures for uranium, which may discourage production, Codola said. The new taxation system increases the levied sums based on the size of the mine, as well as the average price of uranium, he said.
All things being equal, that may help support the price of uranium, he said.
Given all the supportive factors, he said, uranium prices in the $100 to $110 per pound range are "conceivable."
Supply deficit
KAP is still looking to increase overall mine output in 2025 compared with this year, said Jonathan Hinze, president at UxC, a nuclear-fuel-market information and analysis firm.
But the decision comes as uranium supplies have been tight. There's still no production coming out of Niger, which accounts for about 4% of global production, following the July 2023 coup, said Sprott's Ciampaglia.
At the same time, there's been a steady increase for uranium through "nuclear-power-plant life extensions, 'power uprates' and new-build programs," he said. The term power uprates refers to the process of increasing the maximum power level at which a commercial nuclear-power plant may operate.
Ciampaglia said the supply deficit in uranium for next year looks to be around 20 million pounds.
Weekly uranium prices have declined by about 14% to date in 2024, but that's after touching a high of $106 per pound in early February, the highest since August 2007, data from UxC show. At $78 for the week ended Aug. 26, they remain at the higher end of the roughly $18-to-$106 range they've been trading at in the past 17 years.
Despite high uranium prices, supply has been "slow and new production keeps being delayed," Ciampaglia said, adding that Sprott "doesn't expect any meaningful new mine production for at least four years."
The supply deficit for 2025 is looking to be around 20 million pounds, he said.
Bad timing
The timing of Kazatomprom's reduced production plan comes not long after the Biden administration in the U.S. officially implemented on Aug. 12 a law against the import of Russian uranium products into the U.S. The Prohibiting Russian Uranium Imports Act was signed into law in May.
For now, U.S. utilities get somewhere around 6 million pounds of triuranium octoxide, or U3O8, a form of enriched uranium, from Russia, and those utilities are still procuring enriched uranium from that country, said UxC's Hinze.
But "they all know that this flow will end by 2028, if not sooner," he said. The law allowed for waivers through Jan. 1, 2028.
Obviously, the U.S. presidential election could affect the situation a bit, depending on who wins, said Hinze, and the volume of enriched uranium to U.S. utilities may drop a bit in the next few years, but it "probably won't go to zero until 2028."
He believes the end to Russian imports is mostly priced into the market, he said, though any "rapid end to Russian deliveries certainly could be a bullish sign as some utilities would have to cover in the short term."
Uranium outlook
For the long term, the outlook for uranium demand, and therefore price, looks bright.
Uranium is likely to be a "vital piece in the move to clean energy," as it doesn't produce carbon emissions, and most government regulations in and around emissions will make uranium an "increasingly attractive long-term energy source," said Brinker Capital's Codola.
Uranium has its 'own setbacks because no energy source is perfect, or that silver bullet to solve all the world's woes. Nonetheless, it is a stable, reliable energy source which we have multiple decades of experience using.' Nicholas Codola, Brinker Capital Investments
Uranium has its "own setbacks because no energy source is perfect, or that silver bullet to solve all the world's woes. Nonetheless, it is a stable, reliable energy source which we have multiple decades of experience using," he said.
U.S. nuclear reactors have supplied around 20% of the country's power needs since the 1990s, and in 2023 nuclear energy was the largest domestic source of clean energy, according to the Office of Nuclear Energy.
Codola said power generated with uranium is roughly a quarter of the typical cost of electric generation for nuclear-power plants, so if prices for the fuel rise so will the cost per kilowatthour of electricity produced, but only by a "relatively small percentage."
Meanwhile, Ciampaglia said that Sprott Asset Management has been bullish on uranium for over three years and believes that the market is "still in the middle stages of the current bull market."
Investors, he said, have options if they want to access the sector: via certain vehicles that hold physical uranium or an exchange-traded fund that invests in uranium miners.
The Sprott Physical Uranium Trust SRUUF invests and holds substantially all of its assets in uranium in the form of U3O8. The Sprott Uranium Miners ETF URNM tracks an index with holdings in producers, developers and explorers, said Ciampaglia.
For now, buyers and sellers seem to be "comfortable" with uranium prices around the $80 level, said Hinze. There may be some further weakness in the short term if equities are soft and financial buyers stay out of the spot market, but a drop below around $75 is "hard to foresee."
On the other hand, there are "multiple factors" that could propel prices back upward in the coming six to 12 months, he said.
A rise to the high $80s or $90s, Hinze said, is "quite possible by year-end."
-Myra P. Saefong
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08-28-24 1141ET
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