Melissa Shaw reports that 2017 was a rough year for uranium prices, but analysts and company execs are still optimistic that prices will increase in 2018. The U3O8 spot price was at $22 per pound as of November 27, says UxC. That’s up from $19.25 on June 14, but down from $26.68 on February 1. However, the combination of higher demand and a decrease in the supply glut is expected to “send uranium prices 50 percent to 100 percent higher within three years,” as per Katusa Research. In fact, Focus Economics says in a report published in early December that its panelists predict that prices will average $26.10 in Q4 2018 and $33.50 in Q4 2019.
In 2017, persistently low U3O8 prices prompted a number of high-profile supply cuts. At the beginning of the year, Kazatomprom said it would reduce its uranium output for the year by 2,000 tonnes. While the move was initially hailed as a “game changer,” the price boost it caused did not last long. However, further cuts toward the end of the year have spurred hopes that surplus U3O8 will begin to come off the market in 2018. First, major uranium producer Cameco announced plans to suspend production at its McArthur River mine and Key Lake milling operations by the end of January 2018; then Kazatomprom said it would reduce its output by 20 percent over the next three years. Mike Alkin of the Stock Catalyst Report explained that companies can’t mine uranium at a cost of $50 per pound and sell it for $20 to $25 per pound because “that’s absolutely uneconomical for them and makes no sense. They had to cut production.”
Demand for uranium is expected to rise as excess supply starts to come off the market. Alkin said that utilities companies that require uranium will soon be entering a major contracting cycle as 30 to 35 percent of their needs in 2020 are not under contract. He noted that utilities have been holding off on signing contracts in hopes of locking in long-term contracts at low prices; they have been able to meet their needs to some degree via the spot market. Commenting further, Alkin said, “between the most recent establishment of Kaztomprom’s Swiss marketing arm, which can hold uranium out of the spot market, and these announced cuts, the largest provider of uranium is acting like a disciplined supplier and can influence the price of uranium. Add the Cameco cut to the mix, and suddenly the utilities are going to be contracting into a market that can be at a deficit, not a surplus. Prices are going up. That’s great news for uranium investors.”
Nick Hodge, founder and president of the Outsider Club, also highlighted Kazatomprom’s planned 2018 activities in October, commenting, “Kazakhstan is talking about taking Kazatomprom public, and of course they would want the commodity price higher, a higher uranium commodity price environment for that initial public offering.” Sources have told Reuters that Kazatomprom has hired JPMorgan as a lead advisor for a London listing planned for 2018.
On a different note, Brian Leni, founder of the Junior Stock Review, noted that Japan’s nuclear fleet represents about 10 percent of total uranium demand, and said that a Japanese reactor restart could be “the catalyst we need to jumpstart the market.” He added that 20 of the 60 reactors currently under construction are being built are located in China, which also represents “a strong future demand source.” That said, Leni cautioned that the uranium sector is “highly political,” and could also be affected “if tensions were to increase around the world.” He said that while he is expecting prices gains to be “moderate” in 2018, he “would look for a big spike if political tensions around the world were to erupt.”
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