Uranium enters bull market after Covid-19 hits supply

The price of uranium, the radioactive material used to fuel nuclear power stations, has entered a bull market following another big hit to supply.

On Tuesday, Kazakh miner Kazatomprom slashed its 2020 production forecast by up to 10.4m pounds, equivalent to 8 per cent of global supply, because of government-imposed measures to mitigate the spread of coronavirus.

This propelled the price of uranium to $28.70 per pound on Wednesday, up more than 20 per cent from a low in March. Such a rise since a recent low is the common definition of a bull market. The last time the metal traded above $30 was in February 2019.

“The supply hits keep coming,” said Numis analyst Justin Chan, who estimates that between 30-35 per cent of global uranium production has now been affected by virus shutdowns, prompting miners to draw further on their inventories. Kazatomprom said it would continue to fulfil its contractual obligations for 2020 by depleting its stockpiles. 

The curtailment of its operations follows the closure of the world’s biggest uranium mine, Cigar Lake, for a month and the decision of Namibia, a key supplier to China’s huge nuclear industry, to halt all mining activity. Analysts expect these disruptions to further tighten conditions in the market.

The industry has been burdened by large stockpiles since the 2011 Fukushima disaster, which upended the industry as Japan and other countries such as Germany closed nuclear plants and cancelled plans to build new ones. A reduction in stocks should provide a further boost to sentiment, according to analysts and investors.

“Prior to Kazatomprom’s announcement, we were forecasting a 30m pound deficit in [the] uranium supply/demand balance, which now looks as though it could be as much as 40m pounds,” said Alexander Pearce, analyst at BMO Capital Market, adding that the additional shortfall will “only accelerate” the depletion of inventories.

Kazatomprom’s decision to reduce production will also be felt by Canadian producer Cameco, which had expected to purchase almost 5m pounds of uranium from Inkai, a mine it jointly owns with the Kazakh company in southern Kazakhstan. The country accounted for more than 40 per cent of the world’s uranium production last year.

If supplies from Inkai are hit, that could force Cameco to source replacement metal directly from the cash market or from Kazatomprom’s stockpile. 

Annual global demand for uranium is 150m pounds, 85 per cent of which is met through long-term supply contracts between producers such as Cameco, Kazatomprom and utilities.

Typically, nuclear fuel buyers for utilities look to secure contracts roughly two years ahead of use. With a number of contracts dropping off from 2021, buyers are likely to step into the market this year, providing another prop to prices.

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