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Though uranium spot prices have retreated from the decade+ highs of ~$105/lb attained this past February, the spot seems to have consolidated around the low ~$80/lb level in early March and has since regained its upward trend as evidenced by the latest quote of $89/lb. We remain positive on the underlying dynamics for continued uranium strength and as such maintain our $120/lb 12-month price objective. The constructive uranium specific supply & demand fundamentals aside, our positive view is further supported when looking at peripherals to to the uranium spot - namely the term price along with SWU and enrichment prices - all of which remain at decade+ highs.
Historically, the term uranium price has been predominantly higher to the spot. This relationship is perfectly understandable seeing as producers look to hedge their price while utilities look to ensure supply. Though this spot/term delta has remained consistent (albeit at varying degrees) over the last decade+, the relationship flipped in 2023 when the spot surpassed the term price by one of the largest margins ever seen. Even more telling is that this flipped relationship has only grown in magnitude since late 2023. The spot/term delta reached a peak this past February, reaching a level well above $20/lb.
Though the spot has retreated from the February highs, what remains noteworthy is that the term price has continued its upward trajectory, most recently advancing from $75/lb in February to just under $80/lb in March. The fact that the term has remained in its bullish uptrend (despite the recent spot volatility) is a positive sign. We would expect the current delta to continue to narrow and eventually flip on its way to regaining its historic norms.
Along with the strength in the term price, we also highlight the continued decade+ highs in both conversion price (most recently ~$58/lb) and SWU (most recently ~$49/SWU). Recall this all comes in light of the recently Senate approved $2.7B funding package for government procurement of enriched uranium under the Emergency National Security Supplemental Appropriations Act.
Most telling from the chart above is the divergence since 2011 between the spot and spot/SWO ratio. Though the ratio (right hand of the graph above) has been consistently higher than spot, that dynamic flipped towards the end of 2023. After so many years of persistent underfeeding, the ratio is an indicator of the recent switch to overfeeding by the enrichers.