Uranium Week: Not A Pretty Picture

Weekly Reports | Oct 01 2019

It was another slow week in the uranium market, while Macquarie has dissected the demand/supply equation going forward.

-Cuts on both demand and supply sides
-Uranium supply surplus to continue
-Activity again subsides

By Greg Peel

Macquarie Group's commodity analysts estimate global uranium demand, from power generators and investors combined, will fall -1.9% in 2019 and a further -4% in 2020. Currently the largest consumers of uranium are the US (30%), France (14%), China (12%) and Russia (8%). China's consumption is expected to increase by 5% per year for the next five years.

On the supply side, 2018 saw an unprecedented -10% annual drop in production, which, net of inventory drawdowns, resulted in an -8.5% reduction in total supply, mainly due to Cameco's indefinite closure of its McArthur River mine and Key Lake processing facility in Canada. Cameco has an annual production capacity upward of 30mlbs per annum but will likely produce only 18-20mlbs in 2019, Macquarie forecasts, representing an -8-10% cut in global supply.

On the balance of reductions in both demand and supply, Macquarie anticipates a 2-3% surplus of uranium in 2019-20, sufficient to keep the price capped at current levels. The analysts have a long term forecast price (inflation-adjusted) of US$32/lb.

Supply

Production cuts by Cameco, Kazakhstan's Kazatomprom and Australia's Paladin Energy ((PDN)) together cut 2018 production by -24mlbs U3O8, or -15% of 2019 supply.

Paladin's Kayelekera mine in Mali remains shuttered while moves are underway to restart operations at the company's flagship Langer Heinrich mine in Namibia. Management is optimistic about uranium prices ahead. Cameco is currently buying uranium in the spot market to satisfy delivery contracts as it is cheaper than the cost of production and has no plans to do otherwise until prices improve. Kazatomprom is the world's swing producer and recently extended its cap on production through to 2021.

Cameco and Kazatomprom together provide the greatest impact on the supply side of the equation.


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