Weekly Reports | Dec 15 2020
While the uranium spot price continues to exhibit low volatility, three megatrends are tipped to increase the demand outlook for nuclear energy
-Three megatrends contributing to uranium demand
-Strong week for uranium equities
-Uranium spot price continues to trade between US$29.00-30.00/lb
By Mark Woodruff
The demand outlook for nuclear energy continues to improve, just as global uranium supply has shifted into a record supply deficit. Canaccord Genuity expects the deficit to continue and U3O8 demand to grow to 252m pounds (up 45%) by 2035 on the back of tailwinds from three key megatrends.
The three megatrends are as follows:
Firstly, there is the electrification of everything. Major forecasters expect electricity demand to grow an incremental 55% by 2035 as electric vehicle penetration shapes as an emerging influence.
Secondly, there is the growing push for decarbonisation. With many countries below Paris-ratified targets, Canaccord expects there to be a renewal of interest in nuclear as a viable source of emissions-free energy. It’s considered many nations are now targeting covid-19 recovery infrastructure funds that include carbon-free sources of energy.
Finally, there is non-OECD demand growth. Here, the global financial services firm expects China (currently at 4% nuclear) to have a significant nuclear reactor build-out to meet its 2030 clean energy target of 20%.
The broker notes recent share price appreciation of ASX-listed shares and considers investors are clearly revisiting the uranium sector.
Canaccord understands from industry sources that a few utilities are quietly pursuing off-market discussions and it seems likely that some may be evaluating entry into the term market in the early part of next year. This is considered to be supported by the recent extension of the Russian Suspension Agreement and an improving outlook for electricity prices.
In Australia, the broker prefers Paladin Energy ((PDN)), which has the largest leverage to uranium pricing, and Boss Resources ((BOE)).
As mentioned above, global uranium equities were up last week. Share prices for uranium suppliers tracked by industry consultant TradeTech were up an average of nearly 17% from the week before, with some equities up as much as 50% among prospective producers.
This occurred as markets reacted to news that the US Senate Committee on Environment and Public Works had approved legislation aimed at supporting the US nuclear fuel cycle, explains TradeTech.
The American Nuclear Infrastructure Act, which includes an annual program for a US Strategic Uranium Reserve, excludes Chinese and Russian company involvement in supplying uranium to the stockpile.
The bill also includes a targeted federal credit program aimed at preserving commercial reactors at risk of premature shutdown due to economic reasons. The legislation, which has broad bipartisan support, now moves to the Senate floor for a full vote, which will likely take place in 2021.
On the prior day to writing, Australian uranium shares rallied again with notable movers including Paladin Energy up 19% and Energy Resources of Australia ((ERA)) rising 17.65%.
Lowest-cost option for decarbonisation
The 2020 edition of Projected Costs of Generating Electricity notes electricity from the long-term operation of nuclear power plants constitutes the lowest-cost option for low-carbon generation.
The ‘levelised’ costs of electricity generation of low-carbon generation technologies are falling and are increasingly below the costs of conventional fossil fuel generation, according to the joint report published by the International Energy Agency and the OECD Nuclear Energy Agency.