Supply & Demand
- Long-term outlook for the uranium industry remains positive, despite current market uncertainty.
- Nuclear energy continues to play a significant role in the global energy mix.
- The challenge for the industry is the pathway and timing of the transition from today's over-supplied market to the promise of nuclear growth and positive uranium market conditions in the long term.
|Source: WEO 2017, New Policies Scenario, OECD/IEA|
Driven by Energy Demand
Our industry is driven by energy and electricity consumption, which continues to increase. The world’s population growing from 7 billion to 9 billion over the next two decades will drive the need for energy, but even today, there are 2 billion people who lack access to electricity or have only limited access. This is unacceptable in today’s modern world, where electricity is one of the greatest contributors to quality of life. Many countries are working to fill that gap and, in many cases, to keep up with rapid growth. Nuclear energy is an important option in the world’s energy mix, and as energy demand continues to grow, nuclear is expected to do the same.
Nuclear is an Important Part of the Energy Mix
Nuclear power is a safe, clean, reliable, affordable and, most importantly, baseload energy source. The areas of the world where we're seeing the most growth in new nuclear construction is in regions where baseload power is needed – that fundamental, 24-hour power that is required to have healthcare, education, transportation and communications systems.
But it's also important to provide that energy reliably and affordably. Nuclear reactors can run on a single load of fuel for about 12 – 18 months, helping to shield utilities from possible fuel cost swings and supply interruptions.
Operating Reactor Growth
As a result of the world’s need for safe, clean, low-cost electricity, we continue to see new reactor construction across the globe, with fifty-five under construction today. In addition, some existing plants are adding capacity to meet growing demands. As more operating reactors join the grid, it means more demand for uranium.
|Source: Cameco estimate|
|Number of Reactors||19||7||5||7||3||4||2||8|
In our industry, customers don’t come to the market right before they need to load uranium into their reactors. To operate a reactor that could run for more than sixty years, natural uranium and the downstream services typically have to be purchased years in advance, allowing time for a number of processing steps before it arrives at the power plant as a finished fuel bundle.
Secondary Supply Impacts
On the supply side, secondary supplies, consisting largely of government inventories, enricher underfeeding and tails re-enrichment, where the economics differ considerably from mined production, have been a significant contributor to the supply-demand imbalance in the market. In addition, supply from some producers, whose production decisions are not necessarily driven by the economics of the uranium market, such as large diversified miners and companies mining uranium for strategic or social purposes, has been a contributor to the imbalance. Finally, higher-cost production, though sensitive to the uranium price, continues to be supported by higher prices under long-term contracts and/or advantageous foreign exchange rates.
However, in 2017, we started to see evidence that at today’s low uranium prices, not only is some of the higher cost production at risk, even the lowest-cost production faces planned and unplanned risks.
Primary Supply Decreasing
Economic difficulties are beginning to take a toll on the supply side. Not only is there a lack of investment in future supply – we are seeing evidence that existing supply is at risk. Higher-cost producers who have been protected from the low market prices under long-term contracts, are beginning to emerge from that protection, some cutting production, and others having to be recapitalized or seeking protection from bankruptcy. Even the lowest-cost producers are deciding to preserve long-term value by leaving uranium in the ground.
Overall, global production is expected to decrease.
Supply-Demand: Putting it Together
A Need for Long-Term Contracting
Despite the impact of excess supply on today’s market, there is opportunity in the long term for strong producers that have the right mix of assets and flexibility to meet future needs. Ux Consulting Company, LLC (UxC) reports that over the last four years only 320 million pounds have been locked-up in the long-term market, while over 788 million pounds have been consumed in reactors. As annual supply adjusts and utilities’ uncovered requirements grow, the pounds available in the spot market won’t be enough to satisfy the demand.
Positioned for Success
With demand coming on in the form of restarts and new reactors, and supply declining on curtailments and lack of investment, we’re continuing to expect a market shift. Until that time, we will continue to take the actions we believe are necessary to position Cameco for long-term success. Therefore, we will undertake contracting activity which aligns with the uncertain timing of a market recovery and is intended to ensure we have adequate protection under our contract portfolio, while maintaining exposure to the rewards that come from having uncommitted, low-cost supply to deliver into a strengthening market.
Caution about Forward-Looking Information
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