Thematics Unlocked: Signs of a maturing ETF market - Page 14

Chapter 3 : Themes in focus
deeply oversupplied market into one that quickly became undersupplied . Now with demand increasing , the supply deficit is unlikely to dissipate soon due to the uranium production cycle .
Unlike other commodities , uranium requires a longer and more extensive production timeline . Utilities must source uranium 12-24 months before its expected use . Producers like Cameco and Kazatomprom , which together represented 28 % of global uranium production in 2020 , are not expected to increase production for the next 1-2 years . 6 That timeline suggests the earliest we can expect materially higher production output is between 2024 and 2026 , which could provide support for higher prices .
The ETF market and institutional investors , like hedge funds , are also signalling bullish uranium price dynamics . Uranium is different from other energy commodities like oil and natural gas in that its futures market is relatively underdeveloped . Therefore , most investors do not seek exposure to uranium through the futures market , but rather through ETFs , individual equities , or spot market purchases . As this graph shows , ETF flows for uranium accelerated rapidly in 2021 as investors sought exposure to the space amid the supply / demand imbalance .
For non-institutional buyers , like utilities , which need uranium for purposes other than an investment , buying activity in the physical market puts them in a tenuous position . For example , between July 2021 and December 2021 , a
South Africa Japan
UK Denmark
South Korea Canada
Argentina Russia India China
new physical uranium fund purchased approximately £ 44m of uranium , currently valued at approximately $ 2bn . 7 To put those £ 44m in perspective , global uranium demand is estimated to be approximately £ 180m for 2021 . 8
The fund ’ s purchases contributed to driving up spot prices from $ 32 / lb to $ 45 / lb from 2 July 2021 to 31 December 2021 . The price spike
5 10 15 20 25 # of Reactors
Operating Under Construction Near-Term Deployment Early Stage Design Stage Source : World-Nuclear Association . Data as of December 2021 .
is likely to force utilities to think about re-contracting sooner rather than later to avoid a major price impact .
Utilities typically keep only 2-4 years of inventory on hand . If utilities wait to re-contract , they run the risk that prices go even higher from here and they are forced to pay even more . But a potential price drop could be beneficial to these utilities as well .