Raymond JamesUranium Market Outlook
We are bullish on uranium and we anticipate spot and term prices to appreciate
significantly over the next 12-18 months. For full details on our outlook on supply,
demand, prices, industry milestones and risks, please refer to our April 30, 2013
Industry Report, “Revised Supply-Demand Analysis Suggests Prices Must Go Higher”.
Supply Shortfall Looming. We continue to expect a fundamental multi-year supply
shortfall to commence during 2014 largely due to: (i) the expiry of the 24 Mlbs/yr
Russian HEU agreement in November 2013; (ii) continued, aggressive build-out of
nuclear reactor projects (particularly in China, India, Russia, and Korea) and
commensurate uranium demand growth, which more than offsets the early retirements
in some western nations (e.g., US); and, (iii) weakened uranium prices, which have led
many producers and developers to shelve their mine construction/expansion plans,
slashing the primary production pipeline.
Prices Must Rebound Towards Incentive. Accordingly, we believe uranium must move
towards prices needed to incentivize the majority of new supply, which is north of
US$70/lb. The critical question is timing. With all eyes on Japan’s inventories, we expect
two important potential catalysts during 2H13E: (i) applications for reactor restarts from
July 8, onwards, which should provide some clarity on the magnitude and timing of future demand, adding comfort that inventories will not be dumped; and, (ii) Japanese Upper House elections sometime in July, which should drop the political hurdle for restarts even lower.
We forecast uranium prices to average US$45/lb in 2013 and US$60/lb in 2014 (versus US$40/lb now). We anticipate equity valuations are likely to lead the rebound in the commodity price, with greater speculative activity in equity markets than the physical market, which is quite illiquid, particularly in the spot delivery timeframe.