Uranium Week: Megatrends Set To Drive Uranium Demand

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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)).

Uranium Equities

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.

Country News

Relations between China and the UK have been strained as the row over Huawei intensifies, potentially putting Britain’s ambition to renew its aging nuclear power industry under threat.

Nuclear power will remain a key part of France's energy mix, according to comments by President Emmanuel Macron last week during a visit to nuclear components maker Framatome.

While the country deferred the target date for lowering the share of nuclear power from 75% today to 50% to 2035 from 2025, Macron supports the completion of preparatory studies for construction of new reactors in the coming months. In 2023 a final decision will be made whether to shut down nuclear reactors early to implement the targeted 2035 reduction.

Company News

In an update from last week, Cameco has reported two additional positive covid tests at the Cigar Lake Mine, which brings the total to three at the site. All cases are unrelated.

Cameco also reported three cases at the McArthur River mine, which is in care and maintenance.

Uranium Pricing 

TradeTech's Weekly Spot Price Indicator is US$29.85/lb, up US$0.15.

A total of 450,000 pounds U3O8 were traded in four transactions this week.

Sellers have generally met their sales objectives for the year, notes TradeTech, while utilities are watchful for any material sellers may wish to move in order to close out their year-end accounts. As a result, both sides are waiting patiently and looking ahead to 2021, in hopes that a new year will bring renewed interest and activity.

Although the Weekly Spot Price Indicator has risen 20% overall in 2020, it has resided in a narrow US$1/lb band since declining from a four-year-high of US$34.25 in May. The average weekly uranium spot price for 2020 is US$29.69/lb, US$3.85/lb above the 2019 average.

TradeTech's term price indicators are unchanged at US$33.75/lb (mid) and US$37.00/lb (long). 

In the term uranium market, no new activity is reported since month end. One non-US utility awaits offers for 1.4 million pounds U3O8 to be delivered beginning in 2023; offers are due no later than January 22. Several other non-US utilities continue to actively evaluate or seek offers for material in the term delivery window.

On the US side, utilities have been slow to enter the term uranium market on a formal basis following the resolution of the amended Russian Suspension Agreement. This is due to a number of factors, including that many are adequately covered in the near term. In addition, many US utilities are grappling with the impact of covid on their 2020 and projected 2021 cash flows and near-term operations.

Consequently, most US utilities are taking a "wait and see" approach to term uranium contracting. However, a few US utilities are quietly making inquiries and have engaged with suppliers on potential term purchases in hopes of securing more attractively priced material while demand is weak, explains TradeTech.

Sellers do have expectations for a price rise in 2021, but it is unclear when an increase may emerge. The current lack of firm term demand has left sellers weighing the value of waiting for longer-term market fundamentals to play out versus the benefit of locking in sales commitments now in order to maintain market share and build out their contract portfolios.

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