ASX uranium shares have taken the spotlight after uranium prices skyrocketed more than 60% in the past month to over US$50/lb.
Uranium shares were quick to rerate, many of which have doubled in the past month.
The largest ASX-listed uranium player Paladin Energy Ltd (ASX: PDN) is up 95% in the past month, even after sliding 16% on Monday.
Prospective explorers have also boomed, with names such as Boss Energy Ltd (ASX: BOE), Deep Yellow Limited (ASX: DYL) and Peninsula Energy Ltd (ASX: PEN) up between 70% and 115% since mid-August.
As both ASX uranium shares and the underlying commodity surge in such a short span of time, experts are questioning whether or not this new price rally is sustainable.
Uranium boom "hard to maintain" says Morgan Stanley
Uranium prices are running hot largely thanks to Sprott's Physical Uranium Trust.
The fund has been aggressively buying physical uranium off the spot market, sparking a renewed interest in the energy metal and tightening the market.
ASX uranium shares are looking to capitalise on the recent jump in prices, with Paladin Energy eyeing a restart of its "globally significant" Langer Heinrich project and Boss Energy looking to fast track its Honeywell project.
Last Friday, Sprott's Twitter said that it added more than 10 million pounds of physical uranium since 17 August. Now amassing more than 28 million pounds.
Unfortunately, Morgan Stanley questions whether or not Sprott's uranium shopping spree can continue into 2022.
According to Business Insider, the broker said:
It needs to be seen how long the current rate of investment demand can be maintained, but some bulls argue that we won't see the price dipping if fund buying slows, as improved market liquidity has aided price discovery and revealed the 'true' spot price.
Morgan Stanley flags that commodities such as coal and natural gas prices have rallied due to "actual market tightness" whereas uranium's underlying "supply-demand fundamentals haven't meaningfully changed over the last few months to warrant this price surge."
"Only when these utility inventories are worked off materially, the real need for a higher price to incentivise the return of idled supply will become more pressing, we think" Morgan Stanley added.
What does this mean for ASX uranium shares?
The current run-up in uranium prices doesn't necessarily spell big profits for ASX uranium shares.
In the case of Paladin Energy, the company requires US$81 million of pre-production capital expenditure to restart its uranium operations.
Once things get going, life of mine production cash costs come in at US$27/lb in addition to freight and logistics of US$0.95/lb and sustaining capex of US$2.90/lb.
Business Insider said that commodity strategists remain bullish on uranium in the medium-to-long term with a price forecast of US$49/lb by 2024.
If true, this means that the current uranium bull market might need to take a small breather.
