Supply & Demand

A market in transition

The uranium spot price closed the second quarter at about $50 (US) per pound U3O8 following significant appreciation in the first quarter of 2022. Unrest in Kazakhstan in early-January had an impact on the market. Security of supply concerns were amplified with the Russian invasion of Ukraine in late-February. This geopolitical uncertainty has led many governments and utilities to re-examine supply chains and procurement strategies that are reliant on nuclear fuel supplies coming out of Russia. Currently, the global nuclear industry relies on Russia for approximately 14% of its supply of uranium concentrates, 27% of conversion supply and 39% of enrichment capacity.

The geopolitical situation driven by Russia’s invasion of Ukraine has created transportation risk in the region. Sanctions on Russia, government restrictions, and the restrictions on and cancellations of some cargo insurance coverage create uncertainty about the ability to ship material from Central Asia.

As a result of the geopolitical uncertainty, we have seen pressure on prices in all segments of the nuclear fuel cycle. The uranium spot price is up over 18% and the long-term price is up 20% since the beginning of the year. The conversion spot price is up 103% and the long-term price is up 46%, while enrichment spot prices are up 55% this year.

Uncertain supply

Despite the recent increase in uranium prices, years of underinvestment in new production capacity has shifted risk from producers to utilities. In addition to the decisions many producers, including the lowest-cost producers, have made to preserve long-term value by leaving uranium in the ground, there have been a number of unplanned supply disruptions related to the impact of the COVID-19 pandemic and associated supply chain challenges on uranium mining and processing activities.

In addition, not only are there the transportation risks as a result of geopolitical uncertainty, the risk of transport disruptions for Class 7 nuclear material continues due to global supply chain challenges.

Uranium is a highly trade-dependent commodity. Adding to security of supply concerns is the role of commercial and state-owned entities in the uranium market, and trade policies that highlight the disconnect between where uranium is produced and where it is consumed. Nearly 80% of primary production is in the hands of state-owned enterprises, over 70% comes from countries that consume little-to-no uranium and nearly 90% of consumption occurs in countries that have little-to-no primary production.

As a result, government-driven trade policies and, more recently, actions taken in response to Russia’s invasion of Ukraine, can be particularly disruptive for the uranium market.

Increasing demand

The world needs safe, clean, reliable electricity. With a growing focus on electrification and decarbonization, the world has embarked on a clean-energy transition.

The benefits of nuclear energy have come clearly into focus with a durability we believe has not been previously seen. This is driven by the accountability created by the net-zero carbon targets being set by countries and companies around the world. These targets are turning attention to a triple challenge:

  • First, is to lift one-third of the global population out of energy poverty by growing clean and reliable baseload electricity.
  • Second, is to replace 85% of the current global electricity grids that run on thermal power with a clean, reliable alternative.
  • And finally, is to grow global power grids by electrifying industries, such as private and commercial transportation, home, and industrial heating, largely powered with thermal energy today.

The energy crisis experienced in some parts of the world has amplified concerns about energy security and highlighted the role of energy policy in balancing three main objectives:

  • providing a clean emissions profile;
  • providing an affordable levelized cost profile; and
  • providing a reliable and secure baseload profile.

The IEA World Energy Outlook predicts a 52% increase in electricity demand from 2020 to 2040, with a 75% increase predicted from 2020 to 2050.

Growth in Electricity Generation

(TWh)

  1990 2000 2020 2030 2040 2050
Source: IEA World Energy Outlook 2021 Stated Policies
Future estimates       33575 40553 46703
Historic 10092 15441 26762      

There is increasing recognition that nuclear power, with its clean emissions profile, reliable and secure baseload characteristics and low, levelized cost has a key role to play in achieving decarbonization goals.

According to the International Atomic Energy Agency there are currently 439 reactors operating globally and 52 reactors under construction.

Currently Under Construction

  China Asia

Africa & Middle East

India EU Eastern Europe Russia

Amerias

US
Source: IAEA
Number of Reactors 16 8 6 6 5 3 3 2 2

Supply-Demand: Putting it Together

Utility customers do not come to the market right before they need to load uranium into their reactors. To operate a reactor that could run for more than 60 years, natural uranium and the downstream services need 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.

As the spot market continues to thin, utilities are beginning to shift their attention to securing material for their uncovered requirements under long-term contracts. With a renewed focus on security of supply we believe we are in the early stages of a market transition. To meet their uncovered requirements, utilities are turning to proven producers, with tier-one productive capacity and a record of honouring supply commitments.

The current backlog of long-term contracting presents a substantial opportunity for commercially motivated suppliers like Cameco. Our operations are strategically managed to capture full-cycle value at all stages of the nuclear fuel demand cycle.

Our strategy of contracting discipline, operational flexibility, supply discipline, and financial discipline positions us to achieve our vision, of “energizing a clean-air world”and delivering long-term value in a growing market.

Caution about Forward-Looking Information

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