A Look at Key Uranium Trends in 2021
The uranium sector is receiving a lot more attention from investors these days, and sentiment as a whole is on an upward trajectory. I’m not just referring to this week’s boost for uranium stocks following the Bank of America uranium forecast, I’m also talking about a number of other positive factors.
A few weeks ago, UxC held a live webinar focusing on key market trends for 2021. If you’re new to the sector, I should mention that UxC is the industry’s leading research and analysis group for nuclear fuel. It’s a very informative presentation and I wanted to share a few items that really leapt out.
Climate Change Plans
Nuclear energy is actively being touted by governments and utilities as a key component for reaching climate goals, and it’s more than just lip service. A perfect example of this is the US nuclear regulators considering extending power plant licenses to 100 years. UxC also specifically noted that countries that have discontinued, or are looking to discontinue, nuclear energy generation, are struggling to provide convincing plans for reaching their goals.
Climate change targets require major action. Case in point: the United Nation’s IPCC (Intergovernmental Panel on Climate Change) has stated that a median of 840 GWe by 2050 is required to meet climate goals. As the UxC team pointed out, this is double the current amount generated globally.
China’s New 5-year Plan
China is on target to complete five new reactors and commence work on four to six new reactors this year. Interesting, in 2020, China overtook France in nuclear power generation and is now second only to the US. China’s growth rate is accelerating and a new 5-year plan will be announced in March. Considering China’s aggressive approach to the adoption of clean baseload energy, there are going to be a lot of eyes on this plan.
Small Modular Reactors
I wrote a piece all about SMRs last month because the technology has the potential to dramatically change the future of the nuclear sector. There has been a lot of hype over the years – enough to make veteran observers cautious about predictions – so it was particularly encouraging to hear the UxC team state that they are “very excited about the recent changes in SMRs” which could lead to a “paradigm shift”. In other words, a real game changer for the nuclear energy sector. They went on to say that there are “concrete steps occurring soon regarding deployment”. This is strong language from a group that is often cautious with predictions.
Reduced Global Production
Approximately 6 million lbs of production is coming off the market as Ranger and COMINAK cease operation. The Kazakh’s produced 20% below target last year and Cameco is losing approximately 1.5 m lbs per month with Cigar lake shut down.
The reduced production is great for putting pressure on inventories and pricing but here’s where I believe things get really interesting. According the UxC, an estimated 70% of uranium is produced at below $30 per lb (the current approximate spot price), leaving 30% above the spot. Okay, 70% is a lot, but analysis by UxC shows that once we get past 2025, higher cost production must be brought online because of declining inventories and depletion of reserves.
The rub is that producers have made it clear that they will not risk capital to bring idle or new projects online at current price levels. In other words, if nuclear plant operators want to keep operating then prices will have to rise.
Inventory Optimization and Material Flow
European utilities started reducing their inventories a few years ago by delaying contracting, and US companies are following suit. In addition, various funds that hold uranium inventories sold about double what they purchased in 2020. Some of them still hold significant amounts but there has been a definite drawdown. Of relevance to eventual upwards pressure on pricing, UxC points out that producers are continuing their spot purchasing in order to meet their contractual obligations even though there are fewer low-cost inventories available.
All of this means that utilities and other inventory holders no longer have such large buffers in the case of a serious production disruption. This leads into UxC’s observation that, until recently, uranium consumers always assumed that material would be available. With mines being shuttered, inventories shrinking and issues such as Brexit potentially affecting transportation, questions are now surfacing about availability of supply.
The Start of a New Cycle?
Long-term contracting between 2014 and 2020 only occurred at a moderate level. Producers were slow to reduce supply because they were protected by higher price contracts and the high inventories protected consumers from temporary shortfalls. These factors are no longer in play to the same degree and UxC believes that we could be approaching the start of a much larger contracting lifecycle.
All of the above points support a robust future for uranium and, in particular, for new sources of production. As our PFS clearly shows, Fission’s PLS project has the potential to become one of the lowest cost uranium operations in the world. We are continuing to advance this fantastic project and it is extremely encouraging to see one of the industry’s leading market analysts share our optimism for the sector.
Ross McElroy, President and CEO of Fission Uranium