Weekly Reports | Jan 11 2022
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Social unrest in Kazakhstan has directed investor interest towards potential ramifications for the supply of uranium to the rest of the world.
-Social unrest in Kazakhstan puts focus on potential ramifications for the country's uranium supply
-To date no supply interruptions have been reported
-Kazakhstan is equally an important supplier for various other commodities
By Rudi Filapek-Vandyck
With global production concentrated in four countries only -Kazakhstan, Canada, Australia and Namibia- the outlook for uranium must be constantly viewed against the potential for supply interruption and disruptions.
The matter of potential disruption has risen once again now that Kazakhstan, the world's number one source of supply, is grabbing global news headlines through riots in city streets and Russian military moving in to restore law and order, on request by the country's rulers.
Analysts at Macquarie point out planned re-starts of projects including Paladin Energy's ((PDN)) Langer Heinrich, Cameco's MacArthur River and Boss Energy's ((BOE)) Honeymoon are still up to two years away, making any issues with Kazakhstan's supply (40% of total) potentially of even greater importance.
Macquarie recently initiated coverage on both Paladin Energy and Boss Energy and sees both companies, led by "strong" management teams, as potential beneficiaries from a sudden spike in investor interest.
The current uncertainty has the potential to lift the spot price of uranium beyond US$55/lb, the broker believes, which is widely regarded as the incentive level at which projects become profitable enough to trigger (or accelerate) restarts.
In addition to growing interest from financial speculators and investors, Macquarie suggests reactors and utilities may look to secure supply diversity and with historical low levels of contracting, this could result in a frenzy of contracting thus driving prices up further.
Analysts at Morgan Stanley, on the other hand, emphasised there is no tangible evidence that social unrest in Kazakhstan is in any way impacting on the country's production of commodities, often situated well away from busy city centres, nor that this will be the case.
Apart from being a major source of supply for uranium and ferrochrome markets, Morgan Stanley points out Kazakhstan also represents meaningful market shares in oil, zinc and copper supply.
Kazatomprom, the world's leading and lowest cost producer of uranium, has operations mostly isolated in the south of the country with analysts pointing out neither Cameco nor Orano, both JV partners, have experienced any supply disruptions to date. Uranium production did fall by -15% throughout 2020 in the country due to covid restrictions.
Spot Price Lifts
Turmoil in Kazakhstan has reinvigorated the U3O8 spot price and last week saw TradeTech's weekly spot price indicator gaining US$3.85 to US$45.85/lb.
The industry consultant's mid-term and long-term price indicators are currently at respectively US$43/lb and US$45/lb, unchanged from December. Total activity comprised of 11 transactions in the spot market for the week ending Friday, with one transaction concluded in the term uranium market, according to the consultant.
In contrast, spot uranium exhibited significant volatility throughout December in line with global financial markets in general.
Having reached a price of US$46.30/lb early in the month, spot uranium finished the calendar year at US$42/lb on relatively low volume -3.3m pounds U3O4 equivalent compared with 8.9m in November- with TradeTech also blaming the closing out of positions held by traders and speculators ahead of the year-end holidays.
The industry consultant pulled back its mid-term price indicator to US$43/lb from US$44/lb by the end of December, while leaving the long-term price indicator unchanged at US$45/lb.
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