U3O8 Demand, Prices to Rise in H2/23, Analysts Say
Industry Report

The uranium market had had a standout 2023 so far, given higher prices, and this momentum is expected to gain further traction during the rest of the year, purported Canaccord Genuity analysts in a Sept. 25 research note. Increasing demand and continuing tight supply are forecasted, as is upward price movement as a result.

"With market sentiment improving, term market activity rising, and the market tightening, we believe investors should be seeking increased leverage by adding positions in the miners/developers," the analysts wrote.

As for specific companies, Canaccord Genuity likes Yellow Cake Plc. (YLLXF:OTCMKTS), Uranium Energy Corp. (UEC:NYSE AMERICAN), and EnCore Energy Corp. (EU:TSX.V; ENCUF:OTCQX) in the U.S.; NexGen Energy Ltd. (NXE:TSX; NXE:NYSE.MKT) and Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT) in Canada; and Paladin Energy Ltd. (PDN:TSX; PDN:ASX) and Lotus Resources Ltd. (LOT:ASX; LTSRF:OTCQB ) in Australia.

In its uranium update report, the Canaccord Genuity analysts provided their supply, demand, and pricing forecasts and key themes in the market to be watching.

Upward Trajectory for Spot Price

Canaccord Genuity expects the uranium spot price to keep moving up in the near term "as demand moves upstream," the analysts wrote. The financial services firm just increased its global long-term price to $75 per pound ($75/lb) from $65 to reflect rising production costs due to inflation.  

"We have also maintained a Western premium in our forecasts, leading to an effective price of $80/lb per pound for most of our coverage," added the analysts. "On average, our target prices have increased 9%."

In comparison, at the start of 2023, the uranium spot price was $48/lb. Canaccord Genuity projected it would increase to $60/lb by year-end. Currently, it is $70/lb, the highest it has been in 12 years.

Demand on the Rise

Demand should continue to grow based on expected expansion of nuclear capacity, according to Canaccord Genuity. It estimates that total nuclear capacity will increase at a compound annual growth rate of about 3.6% through 2030, which translates to a 30% increase in annual uranium demand through that period.

"This growth is principally driven by new reactor builds in China/India but also supported by life extensions in the West," the analysts explained.

Inventory in Structural Deficit

Inventory levels are near recent lows, yet the pressure on them is increasing, noted Canaccord Genuity. Data suggest inventory overhang does not exist anymore.

"As a result, we believe that the uranium market is transitioning away from being inventory-driven to production-driven, with pricing now being dictated by the cost curve," the analysts commented.

Consequently, Canaccord Genuity expects the uranium market will stay in a significant structural deficit over the next few years.

New Supply Coming But Challenged

Given the rising demand and inventory deficit, the need for a new primary mine supply of U3O8 is immediate, purported Canaccord Genuity. The good news is that supply is growing, thanks to higher prices and successful long-term contracting.

This year, so far, about 121,000,000 pounds (121 Mlb) of uranium have been put under long-term contract, and the total is expected to exceed 2022 volumes. The total last year was 114 Mlb, the largest amount in a decade.

This year, Canaccord Genuity expects primary mine supply to grow to 138 Mlb, reflecting a 7% year-over-year boost, primarily due to the restart of Cameco's McArthur River mine. The financial firm expects supply to grow to 153 Mlb in 2024 and to about 165 Mlb in 2025.

"However, we still foresee risks to bringing new supply online at targeted rates given ongoing supply chain issues and labor constraints," the analysts wrote.

Also, current mine production remains challenged, with setbacks including the military coup in Niger, responsible for about 4% of global supply; lower production guidance from Cameco, the world's second-largest producer; and ongoing issues at Cigar Lake and the Key Lake mill.

Thus, the analysts pointed out this new production will not meet demand in the long term, and consequently, advanced greenfield projects must also come online. Many of these projects, though, have permitting, technical and funding risks.

"We are now firmly in a sellers' market," the analysts wrote.

Notable Trends To Watch

This year so far is notable for a shift back toward securing physical uranium through long-term contracts, Canaccord Genuity analysts noted. They expect it to continue through the rest of 2023.

Also, physical funds are expected to return to the market in H2/23 and compete with utilities for pounds after being relatively inactive thus far this year. Major player Sprott Physical Uranium Trust, for example, stacked only 2.6 Mlb year to date versus 17.9 Mlb in 2022. Going forward, the analysts will watch uranium holding companies to see if they raise money to buy more physical uranium.

"Any additional buying by physical funds could result in a rapid rise in prices," added the analysts.

Canaccord Genuity also expects, in the near term, a rise in demand for UF6 and U3O8 as the feedstock because of higher prices. Overfeeding, or enriching more UF6 less efficiently in the enrichment process to produce more EUP, is already happening. The demand for uranium as feedstock will contribute to higher prices.

Positive Outlook

The Canaccord Genuity analysts wrote in their report they remain "fundamentally bullish" on the uranium sector and that they like uranium mining equities but are selective.

"We continue to prefer companies with quality assets, a sound balance sheet, and positive company-specific catalysts," they wrote.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Uranium Energy Corp., 
2. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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