Uranium price started to Boom, page-64

Throw this is as came across via a little reading on pricing..



Light reading..

Reduced Global Production

Approximately 6 million lbs of production is coming off the market as Ranger and COMINAK cease operation. The Kazakh’s produced 20% below target last year and Cameco is losing approximately 1.5 m lbs per month with Cigar lake shut down.

The reduced production is great for putting pressure on inventories and pricing but here’s where I believe things get really interesting. According the UxC, an estimated 70% of uranium is produced at below $30 per lb (the current approximate spot price), leaving 30% above the spot. Okay, 70% is a lot, but analysis by UxC shows that once we get past 2025, higher cost production must be brought online because of declining inventories and depletion of reserves.

The rub is that producers have made it clear that they will not risk capital to bring idle or new projects online at current price levels. In other words, if nuclear plant operators want to keep operating then prices will have to rise.

Inventory Optimization and Material Flow

European utilities started reducing their inventories a few years ago by delaying contracting, and US companies are following suit. In addition, various funds that hold uranium inventories sold about double what they purchased in 2020. Some of them still hold significant amounts but there has been a definite drawdown. Of relevance to eventual upwards pressure on pricing, UxC points out that producers are continuing their spot purchasing in order to meet their contractual obligations even though there are fewer low-cost inventories available.

All of this means that utilities and other inventory holders no longer have such large buffers in the case of a serious production disruption. This leads into UxC’s observation that, until recently, uranium consumers always assumed that material would be available. With mines being shuttered, inventories shrinking and issues such as Brexit potentially affecting transportation, questions are now surfacing about the availability of supply.

The Start of a New Cycle?

Long-term contracting between 2014 and 2020 only occurred at a moderate level. Producers were slow to reduce supply because they were protected by higher price contracts and the high inventories protected consumers from temporary shortfalls. These factors are no longer in play to the same degree and UxC believes that we could be approaching the start of a much larger contracting lifecycle.

All of the above points support a robust future for uranium and, in particular, for new sources of production.

Source