Kazatomprom lowered its production target by 12% to 14% this year due to a shortage of sulfuric acid, a key material needed to extract uranium, and said production is likely to continue to be limited in the next two years.
The world's largest uranium producer lowered its supply target. Is the rise in uranium prices not over yet?
On February 1, Kazatomprom stated in its financial report that due to the shortage of sulfuric acid, the key material needed to extract uranium, and delays in construction of newly developed deposits, the company will adjust its 2024 production plan, and uranium ore production will fall 20% below the permitted production level they have obtained.
Kazatomprom lowered its uranium production target by 12%-14% this year, which is expected to be 2.1 to 22,500 tons, and said that due to production difficulties, production in the next two years is likely to fall short of the target.
However, Kazatomprom also pointed out that the current level of uranium stocks is still sufficient to meet “existing contractual commitments in 2024.” To increase production, Kazatomprom will continue to actively search for alternative sources of sulfuric acid and plans to strengthen its in-house capacity to produce sulfuric acid through the construction of a new plant.
Kazatomprom (Kazatomprom) is a Kazakh state-owned enterprise engaged in the import and export of uranium, rare metals, and nuclear fuel for nuclear power plants. In 2022, the company's natural uranium production accounts for about 22% of global production.
Wall Street has heard this before, and Kazatomprom is expected to resolve production restrictions in 2025. Until then, the uranium market is likely to continue to face tight supply and rising prices.
Does the “third wave of the bull market” of uranium prices continue?
The recovery of nuclear energy was compounded by limited supply. After more than 10 years of consolidation, uranium prices entered an upward trajectory and climbed to a 15-year high. The spot price of uranium has been hovering around the price of 100 US dollars/pound.
Meanwhile, uranium ETFs have risen 20% so far this year.
Futures prices for uranium raw material yellowcake (yellowcake) contracts in the physical market tracked by the New Zealand Stock Exchange have soared to the highest level in 15 years, driving the stock prices of many uranium miners to rise markedly. The two Australian miners Boss Energy and Paladin have risen 48% and 39% respectively so far this year, making them the two best-performing stocks in the Australian S&P/ASX 200 index.
As the main raw material for nuclear energy, uranium is also benefiting from the green energy transition, and demand continues to rise. Currently, the world is making efforts to reduce carbon and switch to cleaner energy. Among them, nuclear energy, as an energy source without carbon emissions, has once again become the focus of global attention. Fluctuating fossil fuel prices and ambitious decarbonization goals prompted the US and 20 other countries to announce that nuclear power generation will triple by 2050.
The International Energy Agency (IEA) recently predicted that the return to nuclear power to a certain extent means that nuclear power generation is expected to reach a record high by 2025. By the end of 2026, nuclear power generation is expected to increase by an average of about 3% per year, which will also boost uranium demand.
However, after the Fukushima nuclear accident in 2011, the uranium market remained sluggish, which meant that there was not much investment in increasing production capacity. Now, as governments regain interest in uranium, there will also be a shortage of uranium supply.
Earlier this month, Bank of America released a report saying that the uranium market is only getting hotter and the tight supply situation is likely to continue until 2025, which indicates that prices may rise this year.
Tom Price, an analyst at investment bank Liberum, said, “After 10 years of silence, uranium suddenly revived in mid-2021, exceeding the long-term price cap of $30/lb, which also happened to be the marginal cost of mining and production in the global industry.”
Analysts Chris Drew and Christopher LaFemina commented that uranium prices are expected to break through the historic high of $136 per pound set in June 2007. “With spot prices above $100/lb, production from major producers is still insufficient, so long-term pricing remains bullish.”