Hello everybody,
This can be a very lengthy and detailed overview of the state of affairs within the very tiny uranium spotmarket. You’ll most likely have to learn it a pair occasions, sorry. However if you wish to join the dots of a market, that you must speak about plenty of components.
If , take your time in coming days to learn this and to search for extra info on the factors talked about right here.
This isn’t monetary recommendation. Please do your personal DD earlier than investing.
A. Intro
Earlier than studying the lengthy publish concerning the uranium spotbuying vs uranium spotselling, first this:
a) The true motion for the uranium and nuclear sector is within the LT contracting cycle. The uranium spotmarket for utilities and enrichers is primarily for changes in U3O8 wants
A modern chart from Cameco exhibiting the rising world uranium provide deficit: https://twitter.com/quakes99/standing/1623666351532568576?cxt=HHwWgMDTzbb8tYgtAAAA
b) About these ~25Mlbs/y of major uranium manufacturing being offered by way of the spotmarket. That is primarily based on the identified uranium manufacturing of spotsellers (Olympic Dam, Uranium One, African JV Companions, Itochu (Navoi), …) and confirmed by world provide and demand graphs speaking about 2021 and earlier than. Additionally the full world uranium manufacturing in 2022 was ~135 million kilos. Whole world uranium manufacturing in 2023 might attain ~150 million kilos (beforehand 155 Mlbs, however Kazakhstan will produce 4 to five million kilos much less in 2023 now) in 2023, if every little thing goes in accordance with plan. That’s it! So the extra uranium kilos offered within the spotmarket,the much less could be offered to utilities by way of LT contracts and vice-versa. You’ll be able to’t signal extra LT provide contracts for supply in 2022/2023 and promote extra uranium by way of the spotmarket. The worldwide market has to do it with 135/150 million kilos produced uranium in 2022/2023.
c) Comparability between what occurred in October 2006 within the uranium sector and what’s taking place immediately:
Simply to place it into perspective: The impression of the shift from underfeeding to overfeeding (20Mlb/yr + 20Mlb/yr) is greater than 2 occasions that large because the impression of the Cigar Lake Uranium mine flood in 2006 (18Mlb/yr of manufacturing that had been deliberate for 2010 again than had been short-term misplaced as a result of flood in 2006), and now we are able to add the sudden lack of 4 to five million lb of manufacturing in 2023 to that.
For info on that that, I discuss with my publish of 19 days in the past: https://www.reddit.com/r/SqueezePlays/feedback/10sllud/as_if_the_already_existing_global_uranium_supply/
d) Per week in the past Japan introduced an vital extra U-turn (the truth is the most important U-turn within the sector) in favour of nuclear power:
Hyperlink 1: https://www.nucnet.org/information/cabinet-approves-law-to-allow-reactor-operation-beyond-60-years-3-4-2023
Hyperlink 2: https://english.kyodonews.internet/information/2023/02/913e509a7958-cabinet-formally-adopts-policy-of-using-nuclear-reactors-beyond-60-yrs.html
Why is that this an necessary U-turn?
Earlier than the tsunami that triggered the Fukushima accident in 2011 Japan had 54 large reactors that represented 1/9 of all large reactors globally at that time.
When the Fukushima accident had occurred Japan shut all of the reactors down beginning in 2011 (the final reactor was shut down in 2013). Than plenty of japanees uranium stockpile was offered into the marketplace for a few years (2011-2020) and triggered the uranium value to drecrease to unsustainable low costs for future uranium manufacturing.
So long as there was plenty of uranium stockpile promoting into the market there was sufficient uranium provide at too low costs to incentives new uranium manufacturing.
Beginning in 2018 the worldwide annual manufacturing was considerably decrease than world annual consumption which helped to devour plenty of the uranium stockpiles of Japan and smaller sellers.
Than in 2021 and within the first 3 months of 2022 the “consumption” of these uranium stockpiles went a lot sooner with many monetary gamers and producers/builders additionally shopping for uranium out of the market which considerably decreased the uranium stockpiles of the previous 10 years.
In Q12022 UxC (uranium guide for all of the utilities on the earth) warned western utilities that primarily based on the sector survey of finish 2021 the operational uranium reserves (stockpiles) reached essential low ranges!!
And now you’ve got Japan going from an necessary uranium vendor in 2011-2020 to main uranium purchaser for a lot of a long time to come back, simply on the time that many of the uranium stockpiles of the previous have disappeared.
Now new manufacturing is required to fulfill future uranium consumption, however 55USD/lb is simply too low to make a revenue for a lot of wanted uranium producers.
Based mostly on the worldwide manufacturing price curve evaluation vs the worldwide annual uranium consumption, we all know that ultimately 80USD/lb (and if inflation stays excessive, quickly 90 USD/lb shall be wanted) shall be wanted to get sufficient uranium manufacturing ONLINE a pair years after reaching a sustainable 80 USD/lb value
I am a long run investor, however some traders are questioning what the state of affairs is within the spotmarket, so:
B. So let me get that straight (an up to date since I posted this on twitter 3 weeks in the past):
Kazatomprom introduced that Kazakhstan will produce 4 to five million lbs much less in 2023 than beforehand anticipated, however the manufacturing degree in Kazakhstan of KAP, CCJ, Orano are primarily based on LT contracts => Extra uranium spotbuying wanted! + 100% of Uranium One manufacturing comes from JV’s in Kazakhstan => decrease manufacturing = much less uranium spot promoting from Uranium One. Conclusion:most likely an extra couple million kilos of uranium spotbuying coming from her + much less uranium promoting by way of the spotmarket
Yellow Cake shopping for 1.35 million lbs from Kazatomprom through the use of the 2022 possibility, whereas the acquisition possibility for 2023 (100 million USD) nonetheless stays out there for Yellow Cake to be executed => However Kazatomprom manufacturing is predicated on LT contracts, not on non-compulsory purchases from Yellow Cake and Kazatomprom may even produce much less uranium in 2023 than beforehand anticipated, so 1.35 million kilos will likely not come from produced uranium end2022/early 2023, however from elsewhere = extra uranium spotbuying if KAP desires to maintain their 6 to eight months operational reserve at that degree.
ANU Vitality goals to boost 500 million USD (100M in 2Q2023 + 400M by way of IPO (IPO will most likely be in 2024) to purchase bodily uranium with from Kazatomprom. Once more, uranium that Kazatomprom should get from elsewhere (= extra uranium spotbuying), as a result of their manufacturing shall be decrease in 2023 and the deliberate manufacturing degree of 2024 grew to become much less sure too. As an illustration 500M USD at 62.5 USD/lb is 8 million lbs of uranium
The various U-turns (South Korea, Japan, Sweden, UK, Mexico, Diablo Canyon & different US reactors, Belgium (primarily based on 2 1000MW reactors, immediately they speak about extending operations of 5 reactors),…) in 2H2022 added an annual uranium demand of ~10 million lb (I went by way of your complete checklist of reactors involved by these U-turns in 2H2022) that can partially begin to impression the uranium market in 2023 => the annual provide hole elevated by ~10 million lb/yr.
Western underfeeding gone since 1H2022, so no secondary provide from underfeeding anymore, whereas enrichers have engaged themself in secondary provide deliveries for the future => in concept western enrichers have 2 choices: (1) purchase their share of uranium to have the ability to honor their secondary provide dedication => growing uranium demand. Or (2) Not honor the supply of that secondary provide which decreases world uranium provide in comparison with the state of affairs earlier than 1H2022. Consequence: Both means it leads to an extra world provide hole (~20Mlb/y)
Overfeeding might improve world uranium demand by ~20Mlb/y too
U3O8 provide immediately is predicated on LT contracts signed when the sector was in an underfeeding setting and the place everybody within the uranium and nuclear sector thought that that setting of underfeeding would stay for years to come back. However shock shock, an sudden main shift from underfeeding to overfeeding occurred. Which means that the extra uranium wants to have the ability to overfeed end2024/2025 and past with moreover produced UF6 in 2023 and past isn’t coated by the prevailing LT contracts immediately! => Consequence: UF6 stockpiles inside the gas cycle will lower considerably (adopted by UF6 restocking) + All U3O8 delivered immediately by way of these current LT contracts however used immediately (UF6 manufacturing immediately for overfeeding end2024/2025) for the overfeeding a part of EUP manufacturing will lower the U3O8 out there from these current LT contracts for EUP manufacturing exterior the overfeeding half (see decrease instance *) + vital improve of uranium spotbuying (As a result of a pure uranium producer plans his future manufacturing degree primarily based on signed LT contracts and may’t improve manufacturing in 6 months time. More often than not it takes years to considerably improve manufacturing after signature of LT contracts) => Consequence: part of the extra uranium demand in 2023/2024 from the lack of underfeeding (~20Mlb/y) & from the beginning of overfeeding (additionally ~20Mlb/y) will a method or one other must be provided with out LT contract protecting that offer => far more uranium spotbuying coming and probably purchases of uranium stockpiles of $DNN (2.5Mlbs) $UEC (whole stockpile: ~3Mlbs by in 2023, 5Mlbs by finish 2025) $URC $UUUU (<1Mlbs) (However they won’t promote a big a part of their bodily uranium at 60USD/lb. Overlook that. 80USD/lb uranium value, welcome)
China has an enormous uranium provide insecurity!! China solely has 7 very small mines domestically that collectively solely produce ~5Mlbs/y. They’re constructing a strategic reserve on the border with Kazakhstan (Alashankou Uranium Bonded Warehouse) with a storage capability of 23,000 tU (= 60 million lbs). What do you assume will occur with that storage if a battle with Taiwan begins? They’ll fill it as shortly as attainable & hold it completely for home consumption! They’re already filling it with the primary supply + signing brief time period provide contracts (CNNC shopping for 26% of of 2023-2025 manufacturing of Langer Heinrich, …)
Carry merchants with multi yr provide contracts signed in 2020 for supply in 2021-2024. How a lot of these contracts nonetheless exist? Do not forget that in 2021 carry merchants offered some uranium stockpiles to SPUT whereas uranium spotprice was increased than uranium long run value, pushing carry merchants to interchange that offered uranium with new uranium provide sooner or later. Most of it would likely be uranium provide by way of multi-year contracts with producers, however a small half could possibly be by way of uranium spotbuying in 2023/2024.
Many current LT contracts with utilities have a contracted non-compulsory provide on high of the mounted LT provide. When overfeeding hits the utilities, all these utilities with a contracted non-compulsory provide will activate that possibility asking their suppliers (producers) to ship extra uranium than the mounted LT uranium provide. However did producers cowl 100% of this non-compulsory demand with current manufacturing? I doubt it, as a result of producers have additionally been shocked by that sudden shift from underfeeding to overfeeding. Consequence: If this non-compulsory demand is not 100% coated with current manufacturing, these producers should discover uranium from elsewhere (uranium spotbuying from producers) to have the ability to honor 100% of this non-compulsory demand.
What is going to Sprott Bodily Uranium Belief purchase within the spotmarket through the remaining 11 months in 2023? (February 15,2023: They only elevated their ATM with an extra 1.3 billion USD capital increase capability)
(*) instance: LT contract 900,000lb/y signed in 2020 good for 12 months of consumption of two 1000MW reactors earlier than shift occurred. If in 2023 they use part of these 900,000lb for overfeeding, these 900,000lb won’t be sufficient for 12 months of consumption anymore, however just for 10 months of consumption.
So okay, let’s take a conservative (imo) situation concerning the 2023 impression on spotmarket:
4 to five million lb much less produced in 2023 ~> 60% impacting uranium spotmarket = 2.5 million spotbuying + 0.5 million much less spotselling from Uranium One
Yellow Cake 1.35 million lb buy comes integrally from uranium spotbuying
100M ANU Vitality ~2Mlb comes integrally from uranium spotbuying in 2023, whereas the remaining 400M ANU Vitality ~6Mlb comes 33% (= ~2Mlb) from spotbuying and 67% from Kazatomprom manufacturing in 2024
U-turns in 2H2022 solely partially impression the uranium market in 2023. Let’s faux this doesn’t impression the spotmarket however 100% the time period market (LT contracts)
Underfeeding gone = 20Mlbs/y much less provide or an extra 20Mlbs to be purchased by the western enricher ~> An concept: Western enricher swaps current secondary provide from underfeeding that doesn’t exist anymore with a brand new U3O8 supply that the enricher purchased in order that the operational reserve of the utility/shopper stays on the “similar degree” => U3O8 partially purchased in spotmarket, let’s faux solely 25% of 20Mlb in 2023 is purchased within the spotmarket = 5 million lbs
Preparation for overfeeding: ConverDyn restart in 2023 = UF6 manufacturing will increase in 2023 = U3O8 consumption will increase in 2023, however with out being coated by LT contracts => 30% coated by operational U3O8 reserves lower (adopted by U3O8 restocking) and 30% by spotbuying (= 6Mlb in 2023). (For 2023 I hold the remaining 40% of these ~20Mlb apart as a result of the impression of overfeeding solely begins in 2023, and can likely improve in the direction of 20Mlbs/y after 2023).
Be aware: all the doubtless decreases of operational U3O8 reserves in 2023 should be stuffed with new U3O8 once more in 2024. So in 2024 the impression of overfeeding shall be a lot larger
China is shopping for plenty of brief time period and long run uranium provide. Buyers don’t discover it simply, nevertheless it’s taking place (takeover of 68% of Rossing mine in 2019 (earlier than the takeover 25% of Rossings manufacturing was offered by way of the spotmarket, immediately that a part of the uranium manufacturing goes to China too), CCJ, Kazatomprom, Orano, now Paladin Vitality (26% of 2023-2025 manufacturing), subsequent? International Atomic, larger share of manufacturing of Langer Heinrich (Paladin Vitality) going to CNNC? Ultimately, if essential (in the event that they must act quick) China will knock on the door of Uranium One as an example and pay them “100USD/lb” for his or her manufacturing as a substitute of Uranium One promoting by way of the spotmarket. Ukraine, Taiwan, anybody?
Carry merchants: Let’s faux this doesn’t impression the spotmarket however 100% the time period market (LT contracts)
Let’s faux that 100% of non-compulsory demand is roofed by current manufacturing, that means that no extra uranium demand shall be purchased by these producers, however these producers can have much less uranium going into their operational reserves. All uranium spotbuying from producers resulting from overfeeding is a part of the potential uranium spotbuying resulting from overfeeding underneath level 6
Between January 13, 2023 and February 2, 2023 Sprott Bodily Uranium Belief already purchased 1,276,847 lb in 2023. Between February 6, 2023 and February 15, 2022 Sprott Bodily Uranium Belief purchased an extra 700,000 lb, whereas nonetheless having 42 million USD money able to purchase extra
Whole conservative spotbuying (or much less spotselling) in 2023 with information immediately: 2.5M + 0.5M + 1.35M + 2M + 5M + 6M + (1.276M+0.7M) = already 19.326Mlb in comparison with 25Mlb of worldwide whole annual manufacturing being offered by way of the spotmarket earlier than the shift. Okay, so on February 15, 2023 we already discovered a purchaser for ~75% of these 25Mlb in 2023 (25Mlb could possibly be considerably much less immediately) + a pair 100k lbs of 2022 manufacturing that waited on the sideline when SPUT wasn’t lively.
Now look again in any respect the potential extra uranium spotbuying I left apart whereas making that conservative situation:
Kazakhstan manufacturing loss: 40% = 2Mlbs
YCA: Choice of 2023: 100million USD ~> 1.7Mlbs at as an example 58.82USD/lb
ANU Vitality: 4Mlbs in 2024
A small a part of the extra annual 10Mlb/y demand impacts the uranium spotmarket (instance 1Mlb)
Underfeeding gone: 15Mlb
Overfeeding end2024/2025 impacting U3O8 shopping for in 2023: No operational reserve decreases, so extra 30% (not going to make use of 100% as a result of conversion solely progressively will increase and never beginning on January 1, 2023) by way of spotbuying = 6Mlb
The extra operational U3O8 reserves lower in 2023, the extra U3O8 restocking in 2024
China orders to speed up the uranium shopping for in 2023/2024, if tensions round Taiwan begin to improve, and if not sufficient uranium is out there on time they’ll go to the spotmarket
Carry merchants being partially uncovered for his or her current multi yr provide contracts to utilities (instance 1Mlb)
Not 100% of non-compulsory demand is roofed by current manufacturing, that means producers will purchase some extra uranium within the spotmarket (instance 4Mlb). All uranium spotbuying from producers resulting from overfeeding is an element of the potential uranium spotbuying resulting from overfeeding underneath level 6
Sprott Bodily Uranium Belief shopping for on common 500,000lb or a pair million lbs uranium within the spotmarket per 30 days (instance 1: 1.5Mlb in February + (500,000lb x 10 months) = 6.5Mlb / instance 2: 2Mlb in February + (1.5Mlb x 10 months) = 17Mlb)
Whole extra uranium spotbuying left apart in my conservative situation: 2M + 1.7M + 1M + 15M + 6M + 1M + 6.5M to 17M = 33.2Mlb to 43.7Mlb
You solely want a really small half (6 to 7Mlb) of these 33.2Mlb to 43.7Mlb to additionally impression the uranium spotmarket and ALL uranium produced in 2023 uncovered by LT contracts (~25Mlbs/y + couple 100k lbs of 2022) would have been purchased and brought out of the market!
A pair examples (*):
(*) These examples had been written 2 weeks in the past. And a pair of weeks later we see that the state of affairs advanced like expressed in these examples relating to the spotbuying and spotbuying energy from SPUT in February 2022)
i. If SPUT solely buys an extra 800,000lb in 2 final weeks of February 2023 (they nonetheless have 42 million USD money immediately) and 0lbs in coming 10 months, YCA doesn’t activated their 2023 buy possibility and the overfeeding doesn’t trigger an extra uranium spotbuying, however the lack of underfeeding causes a 11Mlb spotbuying in 2023 as a substitute of 5Mlb within the conservative situation, than ALL uranium produced in 2023 uncovered by LT contracts can have been purchased!
ii. If SPUT solely buys extra 800,000lb in 2 final weeks of February 2023 and 0lbs in coming 10 months, YCA doesn’t activated their 2023 buy possibility and the lack of underfeeding doesn’t trigger extra uranium spotbuying than the 5Mlb within the conservative situation, however the overfeeding causes a 12Mlb spotbuying in 2023 as a substitute of 6Mlb within the conservative situation, than ALL uranium produced in 2023 uncovered by LT contracts can have been purchased!
iii. If SPUT solely buys extra 800,000lb in 2 final weeks of February 2023 and 0lbs in coming 10 months, YCA doesn’t activated their 2023 buy possibility, the overfeeding doesn’t trigger an extra uranium spotbuying and the lack of underfeeding doesn’t trigger extra uranium spotbuying than the 5Mlb within the conservative situation, however China orders to speed up the construct out of their strategic operational uranium reserve in 2023 at their Alashankou Uranium Bonded Warehouse (instance: shopping for the remaining 2.35 Mlb Langer Heinrich manufacturing of 2023, stopping Rossing to promote even a bit within the spotmarket in 2023 and shopping for 5Mlb in spotmarket in 2023), than ALL uranium produced in 2023 uncovered by LT contracts can have been purchased! Be aware that the Alashankou Uranium Bonded Warehouse storage capability would improve from 3000tU in 2021 to 13000tU in 2023. 10,000 tU = 26 million lb of extra storage capability in 2023.
iv. If SPUT solely buys extra 800,000lb in 2 final weeks of February 2023 and 400,000lbs/month on common in coming 10 months, YCA doesn’t activated their 2023 buy possibility, the overfeeding doesn’t trigger an extra uranium spotbuying and the lack of underfeeding doesn’t trigger extra uranium spotbuying than the 5Mlb within the conservative situation, however the 4 to 5Mlb lack of uranium manufacturing in 2023 causes a 5Mlb spotbuying in 2023 as a substitute of 3Mlb within the conservative situation, than ALL uranium produced in 2023 uncovered by LT contracts can have been purchased!
v. If SPUT solely buys extra 800,000lb in 2 final weeks of February 2023 and 600,000lbs/month on common in coming 10 months, YCA doesn’t activated their 2023 buy possibility, the overfeeding doesn’t trigger an extra uranium spotbuying and the lack of underfeeding doesn’t trigger extra uranium spotbuying than the 5Mlb within the conservative situation, than ALL uranium produced in 2023 uncovered by LT contracts can have been purchased!
vi. When you mix 20% of the 5 earlier examples (making 5x 1.3Mlbs extra uranium spotbuying all 5 collectively), than ALL uranium produced in 2023 uncovered by LT contracts can have been purchased!
Nicely, okay than 😀 See you considerably increased
$U.UN, $U.U and $SRUUF
Sprott Bodily Uranium Belief (SPUT) (U.UN on the TSX and SRUUF on US inventory trade) is an 100% funding in physica uranium (no uranium on paper!) with out being uncovered to the mining dangers
U.UN share value at 17.65 CAD/share represents an uranium value of ~52USD/lb, whereas transactions above 60USD/lb and even already at 70USD/lb are occurring immediately.
Right here a hyperlink to a latest firm replace with 12 month value goal for Sprott Bodily Uranium Belief: https://cell.twitter.com/quakes99/standing/1599475875153870848
With a market going from danger off to increasingly danger on once more in coming months, I count on Sprott Bodily Uranium Belief to purchase considerably extra kilos than 500,000lb/month in coming 10 months with the help of the flywheel impact from URNM etf and URA etf
Be aware: the FED raised charges from 2004 til mid 2006 as properly:
Supply: https://www.federalreserve.gov/econresdata/notes/feds-notes/2015/effects-of-fomc-communications-before-policy-tightening-in-1994-and-2004-20150924.html
Fyi. The uranium spotprice went parabolic from 2006 til mid 2007
This isn’t monetary recommendation. Please do your personal DD earlier than investing.
Cheers
