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BMO Capital Markets
December 16, 2024 | 00:03 ET~
Uranium
Reflecting on a Uranium Supply Deficit
Bottom Line:
We've reviewed our supply side uranium forecasts alongside our Q1/25 commodity
preview (link), with slightly lower near-term production, we continue to expect
the market to be in a modest deficit out to 2029, supporting higher uranium prices.
Meanwhile, a slow quarter for spot uranium volumes masks a very strong quarter for
term contracts. We expect this momentum should continue into 2025 and, although
uncertainty around Russian export ban situation could continue to act as an overhang,
spot volumes should also improve next year. Further, with persistent headlines
regarding investment in nuclear by hyperscalers, we think sentiment should continue to
improve and underpin ongoing multiple expansion for the equities.
Key Points
The nuclear space continues to enjoy a resurgence in popularity. The conversation
appears to have moved beyond gaining critical government and public support and onto
financing. Thus, it is not insignificant that over the last three months we’ve seen more
hyperscalers announcing investments in nuclear, via new SMR projects and restarts.
This potentially opens the doors for a huge pool of private investment on top of the
growing positive government policies, as well as likely increasing public support which
could bring forward the next wave of new reactors in the US and other established
nuclear markets. Overall demand is still driven largely by strong growth in China and our
outlook for uranium demand remains positive, with ~2.9% CAGR out to 2035.
We've reviewed our supply side estimates, prompted by a number of downgrades
to near-term guidance from developers restarting/ramping up brownfield assets, as
well as recent major permiting milestones for two developers under our coverage
Denison (DML) and NexGen (NXE). Overall, we've made a modest reduction to near-
term supply estimates (1-2Mlbpa lower), which means we expect the market to remain
in a modest deficit out to 2029. Despite this, the uranium price has drifted down
to ~US$77/lb this quarter, reflecting limited spot purchasing. Indeed UxC estimates
suggest that this quarter has been one of the weakest quarters in five years for spot
transactions. Conversely, after a slow start to the year for term contracting, Q4/24 is
shaping up to be one of the strongest quarters in five years. There could be a number
of factors at play for the mismatch between spot and contracting volume, including
the uncertainty around a potential restriction on uranium exports in Russia and limited
financial purchases. However, we believe the low spot volume run-rate is transient,
with momentum likely to continue in the contracting market, likely leading a pick up in
spot through next year.
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