Uranium Marching Towards $100/lb As Supply Squeezed

Strong demand and disruptions to supply have restored investor interest in uranium, which has outperformed most other commodities over the past month, and could keep rising.

Revived interest in nuclear power as a source of clean energy is providing the demand while operational problems at two of the world’s biggest uranium mines is crimping supply.

uranium nitrate, or uranyl, with uranium ore.

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Canada’s Cameco said it was expecting a shortfall in production at its McArthur River mine while Kazatomprom, the national uranium company of Kazakhstan, has downgraded next year’s production estimates.

The net result is that the uranium market could be hit by a 20-million-pound decline on earlier supply forecasts.

Compounding evidence of a tighter than expected nuclear fuel market is heavy speculative activity by commodity investment funds, and a squeeze on small miners which have signed long-term supply contracts but might be forced into the short-term market to cover their contracts.

Since slipping to $64/lb in March, uranium has risen back to $76.65/lb on the spot market, with analysts at the investment bank Morgan Stanley expecting a price of $87/lb before Christmas.

$125/lb Peak Price Possible

Citi, another investment bank, is forecasting a price of $80/lb in the next three months and a rise to $100/lb next year, with a possible peak of $125/lb if a bull market develops, returning uranium to a level not seen since the boom year of 2007.

Cameco, the biggest western-world uranium producer, has been one of the commodity sector’s top performers over the past 12-months, rising by 104% to last sales at $77.39.

Over the last five years as uranium has come in from the cold of environmentalist disapproval Cameco has delivered a stellar 600% share price increase.

Construction of Units 7 and 8 of Tianwan Nuclear Power Plant in Lianyungang, China. Photo CFOTO/Future Publishing via Getty Images

CFOTO/Future Publishing via Getty Images

Citi said in a research note late last week that its 2026 price forecast of $100/lb was based on the return of upside momentum which included demand from China’s nuclear power expansion program, the evolution of small modular reactors and “overfeeding” by uranium enrichment companies.

“We expect uranium prices to stay elevated for the next two-to-three years, as a solid bull case has developed,” Citi said.

“The bullish risk skew (bias) for uranium prices is significant when combined with potential under delivery of uranium and increasing energy demand that incentivizes an increase in nuclear energy capacity.”

Citi’s base case is for uranium to reach $100/lb by the end of next year. The bear case is for a price of $80/lb, while the bull case is for $125 in the first quarter of next year and staying there.

Sprott Busy Buying

Morgan Stanley said next year’s cuts in supply from Cameco and Kazatomprom came on top of an already tight market thanks in part to the buying of funds such as the Sprott Physical Uranium Trust which raised $200 million in fresh funds in June, quickly acquiring 2.3 million pounds of uranium, with cash left to buy a little more.

Another force in the uranium market could be small miners which had optimistically signed long-term contracts to supply fuel from projects which are not living up to early forecasts.

Citi said it was likely that those junior producers could significantly underperform and not be able to meet their obligations.

“In such a scenario, they will be forced to aggressively enter the spot market,” Citi said.