Markets are driven by good old fashioned supply and demand and no more so than in the land of commodities, whether it be copper, crude oil or wheat, if demand by end users exceeds supply prices go up, it’s a simple concept. Uranium markets are currently experiencing lack of supply and appear to be headed towards meaningful material deficits in the late 2020s. Mine reinvestment is required now due to the lag between investment and production. Restart of idled mine capacity and the development of Planned & Prospective mines requires incentive prices US$50-80/lb, which is higher than current spot levels around US$45/lb.
We believe this is an ideal time for investors to consider adding some uranium exposure to their portfolios following the recent 10% dip in the commodity which has been magnified in some stocks after the sector had become a little too hot in the short-term. Obviously the bullish cycle for uranium kicked off in 2022 but we believe it has further to unfold because you simply cannot turn these things on like a light switch.
There are a number of reasons we like the space moving forward as the sector appears to be past the cyclical downturn driven by the Fukushima earthquake. Fundamentals are rapidly improving with uranium inventories being drawdown, mine maturation and additional financial players entering and becoming more active in the spot market.
Extremely topically nuclear power is increasingly being viewed as a low carbon, low air pollution and reliable energy source, and the appropriate regulatory environment is being put in place to facilitate investors (i.e. EU Taxonomy). This makes us believe there may be substantial upside risks to existing uranium demand forecasts. Longer-term, fundamentals are also increasingly appealing for the sector as nuclear Energy is recognised as an essential element of the clean energy mix, this potentially enables nuclear power to increase its contribution from current ~10% of global electricity. Consensus believes uranium demand needs to increase by over 100% from current levels by 2050 if decarbonization is to take place.
The 2 charts below sum up the potential for uranium with its compelling combination of low emissions and high efficiency. As always there are more moving parts to the equation such as Chinas continued strong demand and the EU classifying nuclear infrastructure as a ‘green’ but overall at MM we believe the balance is tilted in favor of the bullish side of the equation.
