Uranium can supply energy for the world’s electricity with less greenhouse effect than virtually any other energy source.
As the largest clean energy source, the development of nuclear power can ensure that the future generation’s energy demands are met effectively and efficiently. The strong long-term demand for uranium can be attributed to the energy needs of emerging countries in Asia, particularly China and India, that seek cleaner alternatives to fossil fuels.
The following countries are the top producers of uranium, based on 2019 figures (world Nuclear Association):
|1. Kazakhstan||22808 tons|
|2. Canada||6939 tons|
|3. Australia||6613 tons|
|4. Namibia||5476 tons|
|5. Niger||2983 tons|
According to the World Nuclear Organisation, as of July 2021, there were 448 operational nuclear reactors in 32 countries plus Taiwan, with a combined capacity of about 400 GWe. In 2020 these provided 2553 TWh, about 10% of the world’s electricity. Another 58 power reactors being constructed in 19 countries under construction across 32 countries or being planned, notably China, India, Russia and the United Arab Emirates. As such, nuclear power capacity worldwide is increasing steadily, and Significant further capacity is being created by plant upgrading. In addition, plant lifetime extension programmes are maintaining capacity, particularly in the USA.
Over 150 power reactors with a total gross capacity of about 110,000 MWe are on order or planned, and over 300 more are proposed. Most reactors currently planned are in Asia, with fast-growing economies and rapidly-rising electricity demand.
Many countries with existing nuclear power programmes either have plans to, or are building, new power reactors. About 30 countries are considering, planning or starting nuclear power programmes.
|China||India||Russia||U.S.A.||South Korea||World Total|
Uranium demand and pricing
Most of the countries that use nuclear-generated electricity do not have sufficient domestic uranium supply to fuel their reactors and therefore they secure the majority of their required uranium supply by entering into medium-term and long-term contracts with foreign uranium producers and other suppliers. Remaining supplies are secured through spot purchases of uranium.
Uranium does not trade on an open market like other commodities. Buyers and sellers negotiate contracts privately. The long-term contract price for uranium is reported on a monthly basis by UxC LLC (UxC) and TradeTech. (see graph below)
To diversify market risks, producers and utility customers often maintain a mix of contract terms and pricing mechanisms in their contract portfolios. Buyers are often willing to pay a premium in long-term contracts, compared to spot prices, because they can achieve secure supply at prices that are more predictable.
It is Forsys’ view that the underlying fundamentals and growth expectations of the uranium industry remain sound because of nuclear power’s clean base load generating capacity. Moreover, given the significant increase in demand for electricity coupled with the G20’s global ambitions to reduce carbon emissions by 2050, Forsys anticipates strong future demand for uranium as a centre piece of global renewable energy strategies seen by the re-kindling for global nuclear programs and evidenced by the rise in number of proposed and planned reactors (see above).
Whilst following the Fukushima disaster in 2011 uranium prices had fallen significantly to a 12 year low of US$18.75 in 2016, spot prices have ticked up to a a four year high of US$33.93 per pound back in May 2020 driven by a series of mine closures in Canada mixed with supply chain disruptions which reduced global output and provided technical support for a higher price. More recently, shifting sentiment around the use of uranium in the nuclear fuel cycle, can be attributed to some governments (notably USA) voting positively for significant fiscal appropriations towards their nuclear energy programs. This has continued with significant anticipation that the new President has clear ambitions to enlarge the US nuclear footprint and make uranium a bigger part of the clean energy equation.
This is further supported by the increase in reactors over the next few years and the desire of China and India implementing ambitious plans aimed at reducing their fossil
footprints to net zero over the next few decades.
Uranium Price History
Key Economic trends in the Nuclear Fuel Business
Uranium Supply and Demand
There are 448 nuclear power plants operating worldwide and 58 nuclear reactors are currently under construction. The low operating cost of nuclear power generation and the increasing concern for the environment and climate change are driving a nuclear renaissance.
Existing nuclear reactors consume around 67,500 tons of uranium per year, of which, around 90% is satisfied by global mine production with the remainder coming from secondary sources, including Russia’s disarmed nuclear stocks, excess commercial inventories, reprocessing of spent fuel and inventories held by governments. The International Atomic Energy Agency (IAEA) estimates that global uranium demand could rise to 100,000 tonnes in 2040 as a result of the construction of new nuclear power plants. The established producers will not be able to completely cover this increase in demand.
On April 23, 2020, the United States Nuclear Fuel Working Group released its report, Restoring America’s Competitive Nuclear Advantage which proposes, among other items, the establishment of a new uranium reserve through US government purchases of 17,000,000 to 19,000,000 pounds of uranium, beginning in 2020, from domestic producers. The US government’s 2021 budget request included US$150,000,000 for this initiative.
Throughout 2020, government-imposed measures to prevent the spread of COVID-19 resulted a decline in production, requiring producers to make spot market purchases to meet contractual obligations. Most of the countries that use nuclear-generated electricity do not have sufficient domestic uranium supply to fuel their reactors and therefore they secure the majority of their required uranium supply by entering into medium-term and long-term contracts with foreign uranium producers and other suppliers. Remaining supplies are secured through spot purchases of uranium. It is estimated that about 90% of all long-term supply contracts between uranium producers and energy generating companies expire by the end of 2020.
The spot price of uranium can be more volatile than the long-term contract price of uranium; noting that the majority of uranium sales occur under long-term contracts. As producers suspended production as a result of COVID-19 lockdowns and purchased uranium in order to meet contractual obligations, the spot price reached a high of US$33.93 on May 31, 2020, but since then, a decline in the industrial and commercial electricity demand has resulted in the spot price declining to US$27.98 on February 28, 2021, which is still higher than US$24.93/lb on December 31, 2019. There is substantial industry commentary that supports a continued improvement in the spot price.
The long-term uranium price on February 28, 2021 was US$33.75/lb, compared to US$32.50/lb on December 31, 2019. Long-term prices are driven more by production costs and future supply-demand forecasts rather than current customer inventory levels. (The Company calculates industry average prices from the month-end prices published by UxC and TradeTech.)