Uranium Week: Uranium’s Relative Underperformance

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As the uranium spot price fell marginally last week, Morgan Stanley sees uranium as the most preferred commodity and seeks to explain its relative underperformance.

-Uranium is Morgan Stanley’s most preferred commodity 
-The Sprott Physical Uranium Trust commences trading
-Uranium spot price falls by less than -1% for the week

By Mark Woodruff 

Uranium is the most preferred commodity by Morgan Stanley, and its commodity strategists see a tighter market going forward.

Uranium’s recent underperformance, relative to base metals and iron ore, is considered partly due to its limited exposure to financial inflows and speculative activity. In addition, relative underperformance has been caused by utilities drawing down their inventories, which means that actual market purchases are falling short of the investment manager’s forecast reactor demand. 

Base metals are up more than 80% since the lows of March 2020, and iron ore has rallied 140%, while uranium has gained only 19% over the same period.

With uranium mine supply is still below pre-covid levels, and well short of the average utility consumption rate, Morgan Stanley’s supply-demand model projects a -25mlbs or -14% deficit this year.

The strategists forecast 2021 mine supply of 128mlbs and expect utilities to consume 182mlbs, therefore 54mlbs has to come from inventories and secondary supply sources. 

Morgan Stanley adopts an average spot uranium price forecast for 2021-23 of US$36/lb, US$41/lb and US$49/lb, respectively.

Company News

The much-anticipated first trading in units of the newly established Sprott Physical Uranium Trust commenced July 19 on the Toronto Stock Exchange. The Trust is the world’s largest publicly-listed physical uranium fund and will look to provide liquidity for investors through exposure to the physical commodity.

Spain’s Nuclear Safety Council has blocked ASX-listed Berkeley Energia’s ((BKY)) planned uranium mine in the province of Salamanca because of safety concerns. It says it took the decision due to a lack of reliability and a high level of uncertainty over how radioactive waste would be stored at the facility.

Berkeley, which has a triple listing in Britain, Spain and Australia, and operates no other projects, had insisted the planned mine could be profitable since conducting initial studies in 2007.

ASX-listed Okapi Resources ((OKR)) has signed a binding agreement to acquire Tallahassee Resources, which owns a 100% interest in the Tallahassee Uranium Project in the US State of Colorado. The company also has an option to acquire 100% of the Rattler Uranium Project, including the historical and high-grade Rattlesnake open-pit mine in the US State of Utah.

In addition, the company has launched a placement to raise $2.84m, via the issue of 14.2m shares at $0.20 per share. Proceeds will be used to fund acquisition costs, exploration and general working capital.

Uranium Pricing

Industry consultant Trade Tech's Weekly Spot Price Indicator fell -US30c to US30.30/lb last week. The Indicator currently sits nearly 18% above the 2021 low of US$27.40/lb seen in mid-March. 

The average Weekly Spot Price Indicator in 2021 is US$30.30/lb, US$0.59 above the 2020 average.

Activity in the spot uranium market was quiet on the surface this week, reports TradeTech, with prices trending down slightly. However, the lack of formal activity was offset by an increase in off-market activity, and buying by utilities across the spot, mid and long-term delivery periods.

Traders, financial entities, and producers were largely absent as buyers last week, marking the first time in many months that utility demand has outpaced purchasing by non-end users. Sellers continue to exhibit a greater willingness to show utilities lower offer prices than other buying entities.

TradeTech's term price indicators are US$32.40/lb (mid) and US$35/lb (long).

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