Supply & Demand

The uranium market has improved significantly relative to a year ago. There have been substantial production cuts, cuts to some secondary supplies, reductions in producer inventories, and an increase in demand for uranium in the spot market from producers and financial players. The market has finally reached the point where, on an annual basis, consumption has returned to pre-2011 levels, and some interest in long-term contracting is emerging.

But there is still a need for caution in the near term. There have been a number of supply and demand developments, which make for a lot of moving parts in the industry. These moving parts have shifted the market sentiment to one of uncertainty and confusion, resulting in a lack of acceptable long-term contracting opportunities, while participants try to digest the implications of the changing dynamics.

Supply

Economic realities continue to have an impact on the security of supply in our industry. In today’s market environment, it does not make sense to invest in future primary supply. The market has seen significant existing primary supply shutdown and not just by the higher-cost producers. Even the lowest-cost producers are deciding to preserve long-term value by leaving uranium in the ground.

Adding to security of supply concerns today are the market access and trade policy issues facing the nuclear industry. These market access and trade policy issues highlight the importance of origin in an industry where almost 90% of primary production comes from countries that consume little-to-no uranium, and 90% of uranium consumption occurs in countries that have little or no primary production.

Furthermore, the issues highlight the fact that nearly 70% of primary production is in the hands of state-owned enterprises, after taking into account all of the cuts to primary production that have occurred.

Demand

The world needs electricity

Our industry is driven by energy and electricity consumption which continues to rise year over year. More than two billion people around the world remain without reliable electricity, a significant tool in improving people’s quality of life.

Growth in Electricity Generation

(TWh)

  1990 2000 2017 2025 2040
Source: IEA World Energy Outlook 2018 New Policies
Future estimates       30253 40443
Historic 10092 15441 25279    

The world needs clean energy

Nuclear power provides affordable, safe, clean and reliable generation of baseload electricity. There is a growing acknowledgement that adherence to clean air and global climate change goals requires a material dedication to all non-emitting energy sources, including nuclear.

The United Nations Intergovernmental Panel on Climate Change special report made it clear that nuclear energy is a necessary part of an effective global response to achieving climate change goals. The Union of Concerned Scientists, who has traditionally not supported nuclear energy, has also acknowledged that in order to combat climate change, all zero carbon options have to be considered, including nuclear.

For the first time in nearly two decades, the International Energy Agency released a report on nuclear energy, in the hopes of bringing it back into the global energy debate. The report highlighted that a steep decline in nuclear power would threaten energy security and climate goals and result in an additional four billion tonnes of carbon emissions (the equivalent emissions of another United States) by 2040.

Reactor growth helps achieve both

Nine new reactors began commercial operation in 2018 and early 2019. Today 53 reactors are under construction, with many more planned. Demand is growing. This growth is largely occurring in Asia and the Middle East, however it is being partially offset by early reactor retirements, plans for reduced reliance on nuclear, or phase-out policies in some regions.

Currently Under Construction

  China Asia India Russia Africa & Middle East Americas Eastern Europe Europe
Source: Cameco estimate
Number of Reactors 10 10 7 7 5 4 4 3

China, the fastest growing nuclear energy market in the world, added seven new reactors to its electricity grid. It now has 45 reactors in operation, with 11 under construction with a target of 120 gigawatts by 2030. While there have been some delays in its new build approvals, in 2018, it hit some important milestones; successfully connected the world’s first new generation of reactors, the EPR and AP1000 reactors, to its electricity grid. China's aggressive reactor construction plan also seeks to build 30 additional reactors, outside of China, over the next decade.

India is also a good news story. The Indian government announced that by 2025 nine reactors under construction would be completed. In addition, it indicated another 12 reactors have received administrative and financial approval, with a target start-up of 2031.

In the Middle East, United Arab Emirates have four reactors under construction. In addition, a number of other countries, such as Belarus, Bangladesh, Turkey and Saudi Arabia continue with their nuclear energy construction programs and plans.

Supply-Demand: Putting it Together

Like other commodities, the uranium industry is cyclical. After years of low investment in supply, as has been the case so far this decade, security of supply becomes increasingly important, and utilities re-enter the long-term market to ensure they have the reliable supply of uranium they need to run their reactors.

In our industry, 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 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.

UxC estimates that cumulative uncovered requirements are about 1.9 billion pounds to the end of 2035. With increased demand coming on in the form of restarts and new reactors, and supply becoming less certain as a result of curtailments, lack of investment, and market access and trade policy issues, we’re continuing to expect a market shift. We do not believe the pounds available in the spot market will be enough to satisfy the growing backlog of long-term demand.

As a result, we expect there will be increased pressure for a return to long-term contracting on acceptable terms.

Until that time, we will continue to take the actions we believe are necessary to position the company 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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