Splendid Uranium Bull Run to be Prolonged by Kazatomprom Acid Woes

• Kazatomprom, the world's largest uranium producer, has lowered 2024 production guidance due to sulfuric acid shortages. This could extend into 2025.
• The acid shortage stems from strong agricultural fertilizer demand in Kazakhstan and limited regional supply. A new acid plant will only be online in 2026.
• Kazatomprom expects to meet 2023 contractual obligations but may need to buy material if further acid problems emerge. This could tighten the uranium market.
• The sulfuric acid issues highlight potential obstacles to restarts and new projects globally. This may constrain medium-term supply growth hopes.
• With meaningful new Kazakh supply expansion in doubt until at least 2026, the structural uranium deficit could persist for longer, supporting prices.

Kazatomprom Cuts 2024 Guidance on Acid Shortage, Structural Deficit to Remain

Kazakhstan's state-owned uranium production champion Kazatomprom rocked the nuclear fuel world on Thursday with the announcement that sulfuric acid shortages will prevent the planned ramp-up of operations in 2024 and potentially 2025. The company left its 2023 guidance unchanged but warned future supply growth is now at risk. This revelation gives credence to the uranium bull thesis that mine restarts and new projects worldwide face greater obstacles than optimists expect. With meaningful new supply from the planet's largest uranium mining nation unlikely to emerge potentially until 2026 at the earliest, the structural deficit left by years of underinvestment looks set to linger for longer. That points to sustained higher prices as utilities scramble for long-term contracts.

Limited Domestic and Regional Sulfuric Acid Availability

In their 2024 operational preview, Kazatomprom management dedicated ample verbiage to explaining the sulfuric acid situation. They noted that robust agricultural fertilizer demand in Kazakhstan has squeezed acid supply. Attempts to source material from neighboring countries also came up short. With Kazakhstan landlocked, overseas procurement is not feasible. As Brandon Munro, CEO of development firm Bannerman Resources explained, "If they can't get it from their neighbors, that pretty much means they can't get it from anywhere."

Munro believes the risks to acid availability are firmly "to the downside," noting: "You don't see an environment where you would expect an expansion, it probably points more towards a contraction."

2024 Deliveries Secure but 2025 and Beyond Uncertain

Kazatomprom expects to meet all contractual commitments in 2024, keeping output relatively steady. But the company stressed that additional acid constraints could necessitate buying material from joint venture partners or spot markets to fulfill deliveries. Such actions seem likely in 2024 and 2025 should issues remain unresolved. As Munro summarized, the acid problems make clear that for new projects and restarts globally, "The supply curve is not going to be quite as smooth as perhaps people think."

New Acid Plant Only Online in 2026 (maybe!)

Pinning hopes on a new $300 million sulfuric acid plant being built to alleviate the reliance on external sources, Kazatomprom indicated it would only enter service in 2026. The company said that if solutions are not enacted promptly, acid shortages could "unfavorably influence" production past 2025. This contrasts with the lofty plans outlined in 2021 to elevate output from 80% of licensed capacity in 2023 to 90% in 2024 and 100% by 2025.

Structural Deficit Set to Persist

Munro concluded that with meaningful new Kazakh supply unlikely before 2026, "This is further support for the uranium market at least during 2024 and 2025." The acid challenges make asset restarts and new projects across other geographies appear more doubtful as well. Coupled with unrelenting reactor demand growth and ongoing supply discipline, the wide structural deficit in the uranium market looks poised to linger for the balance of the decade. That paints a rosy picture for prices to motivate end-user contracts and spur investment to bring idled capacity back online. But it also underscores that the road to higher production may contain more hairpin bends than some foresee.

The Investment Thesis for Uranium

• Kazatomprom's acid problems will constrain supply growth for longer, extending the structural deficit supporting prices
• New mines and restarts globally face rising impediments, keeping the supply outlook tight
• Utilities need contracts to guarantee fuel access, providing price upside catalysts
• Fundamentals point to sustained higher prices to incentivize idled capacity restarts
• Uranium equities offer leveraged exposure to rising uranium prices

Kazatomprom's sulfuric acid shortage issues paint a sobering picture of the numerous challenges constraining global uranium production growth. With Kazakhstan unable to meaningfully boost supply until at least 2026, the wide structural deficit in the market looks set to linger. That provides impetus for higher prices to spur new production. But with acid availability now impacting the planet's largest producer, it underscores that the road to higher supply may not run as smoothly as optimists expect. For uranium investors, that brightens the prospects of an extended bull run.