Supply & Demand
Years of persistently low prices have led to planned supply curtailments of existing productive capacity, lack of investment in new capacity, and the end of reserve life for some mines, eroding supply certainty. These fundamentals are being amplified by several unplanned supply disruptions to mining and processing activities related to the impact of the COVID-19 pandemic, the purchase of physical uranium by investors, and the risk of global supply chain interruptions disrupting the flow of goods and services in the uranium business.
In the past, secondary supplies have filled some production deficits. However, after years of drawing on these one-time resources, secondary supply capacity has declined.
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. About 80% of primary production is in the hands of state-owned enterprises, after taking into account the cuts to primary production that have occurred over the last several years. Furthermore, about 80% of primary production comes from countries that consume little-to-no uranium, and nearly 90% of uranium consumption occurs in countries that have little-to-no primary production. As a result, government-driven trade policies can be particularly disruptive for the uranium market.
In this environment, we believe the risk to uranium supply is greater than the risk to uranium demand and expect it will create a renewed focus on ensuring availability of long-term supply to fuel nuclear reactors. Over time, we expect this renewed focus on security of supply will provide the market signals producers need.
The world needs electricity
Around the globe there is an increasing focus on electrification for various reasons. There are countries looking to install baseload power, while others are looking for a reliable replacement to fossil fuel sources, and finally, there is new demand for things such as the electrification of transportation.
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.
|Source: IEA World Energy Outlook 2021 Stated Policies|
The world needs clean-air electricity
Increased electricity demand is occurring at precisely the same time that countries and companies around the world are committing to net-zero carbon targets. This has led to the recognition, from a policy point of view, that nuclear will be needed in the toolbox to sustainably achieve electrification and decarbonization goals. The IAEA increased its projections for nuclear out to 2050 for the first time since 2011. This includes nuclear generating capacity doubling to 792 GWe, from 393 GWe in 2020, which represents a 10% increase over the prior forecast.
In addition, the 2021 World Nuclear Association (WNA) Nuclear Fuel Report was released in September and includes numerous positive developments for the industry. The prospects for nuclear continue to grow with many countries now targeting net-zero carbon emission. Growth is projected at around 2.6% annually through 2040, with China making the most notable impact to higher demand projections post 2030. On the supply side, production through 2025 declined significantly relative to the previous report from 2019.
Demand gap filled
The demand gap left by forced and premature nuclear reactor shutdowns since March of 2011 was filled in 2018. According to the International Atomic Energy Agency there are currently 442 reactors operating globally and 51 reactors under construction. With a number of reactor construction projects recently approved, and many more planned, the demand for uranium continues to grow.
|China||Asia||EU||India||Africa & Middle East||Eastern Europe||Russia||
|Number of Reactors||14||9||9||6||3||3||3||2||2|
There is growing recognition of the role nuclear power must play in providing safe, reliable, affordable carbon-free baseload electricity and achieving a low-carbon economy.
Momentum is also building for non-traditional commercial uses of nuclear power such as development of small modular reactors and advanced reactors, with numerous companies and countries pursuing projects. Longer term, these projects have the potential to open up new fuel cycle opportunities and demand for uranium. In the medium-term, reactor life extensions are adding demand and in the near-term unplanned demand has come from junior uranium companies and financial funds purchasing in the spot market. Policy decisions to support the continued operation of existing reactors also have the potential to increase near-term demand.
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, the pounds available will not be adequate to satisfy the growing backlog of long-term demand. Ultimately, we expect the market uncertainty to give way to increasing concerns about the security of future supply.
To ensure the availability of reliable and sufficient productive capacity to fuel carbon-free baseload electricity, a return to long-term contracting, which reflects the economics of bringing on new supply, is beginning to emerge. Requests for proposals have come to market as utilities shift attention to securing material for their uncovered requirements.
Cameco is well-positioned to respond to this growing need for uranium fuel to generate safe, clean, reliable and affordable electricity. Our strategy of operational flexibility, market alignment and financial discipline will allow to achieve our vision, of “energizing a clean-air world”, thereby delivering long-term value in a growing market.
Caution about Forward-Looking Information
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