A coda to my tweets this week on #uranium contracting and the carry trade:

We care about how uranium has been bought and sold over the last decade - not just the sale price - because it informs us as to how a period of rapid price increase could develop over the next few years.

Reminder: the carry trade provides three main services.

1. Time shifting - matches supply today w/ demand tomorrow
2. Price formation - provides fixed forward prices in a market not always willing to provide them
3. Risk mitigation - decouples forward supply from mine operations

At some point in the forward price curve, newly mined supply (tied to inflation) is less expensive than financed spot supply (tied to spot price + interest).

At a constant financing rate, a spot price increase brings forward the time at which these two price curves intersect.

This is not controversial - at the locus of increased utility purchasing and decreased supply availability, uranium price goes up and the carry trade becomes less attractive. For lack of a better term, let’s call this a transition from a carry-driven to production-driven market.

A production-driven market might be:

...in contango, with a forward curve driven by mining cost inflation (input costs, depletion).

...in backwardation, with a supply squeeze in the short term but competitive sellers offering cheaper prices in the forward market.