Uranium prices will rise again: Remain “tactically bullish” – Citi

Without doubt, uranium has been one of the hottest investing themes of the last 18 months. We’ve followed the story very closely here at Market Index & Livewire, tracking the fundamentals, the technicals, the most important ASX stocks, as well as reporting the latest major broker opinions – from the very start of the run.

We are your one-stop source for uranium information!

Unfortunately for uranium bulls, it’s been a tough time of it lately. After a big run up from below US$60/lb around mid-last year, the uranium peaked at just over US$107/lb in February this year – and it’s been a steady and painful decline since then.

The impact on ASX uranium stocks has been profound – with the likes of Boss Energy (ASX: BOE), Paladin Energy (ASX: PDN), Bannerman Energy (ASX: BMN), Deep Yellow (ASX: DYL) among others nursing substantial falls. The table below speaks to the recent damage, but I note that most Aussie u-stocks are still showing decent gains over the last 12 months.

Can they recover? Should investors hold for the next phase of the uranium bull market, or accept what’s still left on the table and bail?

It’s with great pleasure and anticipation I bring you this latest piece of the uranium puzzle from major broker Citi. Good news U-bulls, they’re still bullish on the uranium price, even expecting an imminent recovery. Let’s investigate the reasons for their continued bullish stance including key demand and supply factors of the uranium market as well as their latest price forecasts for 2025 and beyond.

Where will the uranium price go in 2024 and 2025?

In their latest research note on uranium, titled “Uranium price weakness to subside as demand for nuclear energy increases even further while supply still lags” Citi (concedes that recently the uranium price has been range bound. The reason for the malaise, suggests the broker, is an “absence of trading volume and liquidity”.

"We remain tactically bullish on uranium in the near and mid-term" 

–Citi

Citi believes this is about to change as investors refocus their attention away from the recent (bearish) news of “slightly higher” Kazakh production. Citi’s base case forecast suggests the uranium price “could rebound and reach $98/lb later this year”, but it would average around US94/lb.

Upside momentum is set to pick up in the third and fourth quarter, and “is set to continue into 2025” with Citi forecasting an average price of US$110/lb for next year.

The current price of uranium is around US$81/lb, so this implies around 16% upside for the balance of this year compared to Citi’s average price forecast, and 21% to the broker’s peak target of US$98/lb. The upside grows to as much as 36% in 2025.

These are bullish targets, and should Citi turn out to be correct, it would deliver solid margin support to ASX-listed producers BOE and PDN give their production cost range is approximately US$30-35/lb.

What are the key supply-side factors impacting the uranium price?

One of the reasons Citi offers for the recent dip in the uranium price is that overall, uranium production has continued to grow with a 10% increase in 2023, with 90% of that growth coming from existing producers ramping up production.

Citi forecasts Kazakhstan’s production will “reach 59mln lbs this year as issues with sulfuric acid are expected to be alleviated”. In the other major global producer, Canada, production at Cigar Lake and McArthur River mines is also expected to continue to improve, albeit plateauing later this year.

Citi acknowledges that uranium mine restarts and new mines coming online “would play a larger role in U3O8 price determination” as the broker projects supply to grow by 17 million pounds this year, by 14 million pounds next year, and by 12 million pounds in 2026.

Importantly, production growth is expected to sharply contract later in the decade, growing by only 9 million pounds in 2027, just 2 million pounds in 2028, and then just 1 million pounds in 2029. This pegs total cumulative growth in supply between now and 2030 of 38 million pounds, says Citi, but the broker is forecasting total cumulative growth in uranium requirements over the same period “will exceed 40 million pounds”.

Inventories are (as they have been for the last 20 years) the key piece of the uranium supply-side puzzle, suggests Citi. The broker notes inventories are projected to balance the market in near term, but longer term, they forecast inventories to fall by 20 million pounds to just 18 million pounds by 2030.

This means uranium production will once again be “at the center of the equation” when it comes to the uranium price, predicts Citi.

What are the key demand-side factors impacting the uranium price?

Citi also notes that demand-side factors for uranium “have been improving steadily”, citing a growing need for low-carbon emission power generation and increasing global power consumption requirements.

This is making nuclear energy “extremely attractive globally”, offers the broker who points out that US power generation requirements alone are expected to grow 11% by 2030 as power hungry AI and data storage themes rapidly expand. Citi concedes there aren’t any new nuclear plant builds on the horizon, but predicts utilities will become more active in uprating plant life, life extensions, and restarting of shuttered plants. Combined, this could “meaningfully increase uranium demand in the US alone”, says the broker.

Citi points out that plant restarts in the US and elsewhere “would represent the most meaningful short-term increase in uranium requirements, as initial fuel loading would be 3 times more than for the regular refuelling process”.

Where to from here for Aussie uranium investors?

That’s the million dollar question! Certainly Citi has laid out a compelling case for potential improvement in the uranium price over the medium term – and possibly increasingly so towards the end of this decade as the market moves further towards a supply shortage and all-important inventories run down.

It’s important to remember that the demand side of the equation can move very slowly in the uranium industry, as new reactors, or even restarting reactors, takes many years to facilitate. The short term supply response can be comparatively more dynamic. This means that in the short term, the uranium price, and the price of ASX-listed uranium stocks, might not always reflect the long term fundamentals.

This article first appeared on Market Index on Monday 19 August 2024.