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Uranium market should remain in deficit despite Cigar Lake restart, analysts say


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Uranium market should remain in deficit despite Cigar Lake restart, analysts say

Analysts believe that Cameco Corp.'s decision to restart its Cigar Lake uranium mine in Saskatchewan, the world's largest operational source of the metal, should not substantially impact the uranium supply shortfall caused by the coronavirus pandemic.

The major uranium producer announced in late July that it would restart production in September, ending a hold on output at Cigar Lake that began in March when reports of coronavirus infections were just beginning to ricochet across the globe.

Days later, another significant producer of uranium, JSC National Atomic Co. Kazatomprom, announced plans to return workers to mine sites by mid- to late August, though production levels would be "severely impacted" by its own four-month shutdown prompted by the pandemic. A Kazatomprom spokesperson confirmed Aug. 19 that the company is "gradually" increasing staffing to normal levels. The company also announced plans the same day to reduce uranium production by 20% through 2022.

Cameco's decision to suspend Cigar Lake led to a significant rise in the uranium price. Since its late July announcement that it would restart production, the price has fallen 3.7%, according to an S&P Global Platts assessment. As of 1 p.m. ET on Aug. 18, S&P Global Platts assessed the 12-month average of uranium spot prices, or the average price for delivery over the coming 12 months, at $31.43/pound. The price was the lowest assessed by Platts since April 14.

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The plan to bring Cigar Lake back online came much earlier than expected, and the market reaction was "bad" as some believed that the development could lead to the return of a global oversupply of uranium, CIBC World Markets analyst Oscar Cabrera said in an Aug. 18 interview. But Cabrera said the announcement cannot fix the supply shortfall created by the monthslong shutdown. "Things haven't changed that much," the analyst said. "We have a deficit in the uranium market this year and next year."

"I've been asked by clients if I agree with thought that the market might be in surplus this year. I don't agree with that," Cabrera said.

The earlier-than-expected Cigar Lake restart plan could "serve to disrupt pricing momentum in a still relatively fragile and recovering uranium market," Scotiabank metals and mining analyst Orest Wowkodaw wrote in a July 30 note. The annual global supply deficit is still projected to average a total of 23 million pounds through 2022, or roughly 13% of global uranium demand, according to Wowkodaw.

"Despite the earlier restart, we continue to forecast the U3O8 market to remain in a relatively large structural deficit position for the foreseeable future supporting stronger prices ahead," Wowkodaw wrote.

TD Securities analyst Greg Barnes affirmed this view in a July 30 note, asserting that the restart should not materially impact 2020 uranium market supply and demand balance estimates and that mine production "remains highly uncertain for 2021."

"We believe that uranium market fundamentals have improved markedly over the past 12 months," Barnes wrote.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.