Two new research notes from BMO Capital Markets and Morgan Stanley say today’s price marks a floor and predict a rally in prices over the next few years to the ~$50 level by 2024.
The stars seem to be aligning for a new phase of nuclear energy investment with the US, China and Europe bolstering the bull case for the fuel this month.
Although nuclear energy was not mentioned explicitly in the $2 trillion Biden infrastructure proposal released today, its federally mandated “energy efficiency and clean electricity standard” is hardly achievable without it.
Over the weekend leaked documents showed a panel of experts advising the EU is set to designate nuclear as a sustainable source of electricity which opens the door for new investment under the continent’s ambitious green energy program.
China’s 14th five-year plan released a fortnight ago also buoyed the uranium market with Beijing planning to up the country’s nuclear energy capacity by 46% – from 48GW in 2020 to 70GW by 2025.
The opacity of the inventory situation remains a key uncertainty to price – see for example palladium, which needed almost 7 years of deficit before the price really took off
There are several factors working in uranium’s favour, not least the fact that annual uranium demand is now above the level that existed before the 2011 Fukushima disaster when Japan shut off all its reactors:
- Uranium miners, developers and investment funds like Yellow Cake (13m lbs inventory build up so far) are buying material on the spot market bringing to more normal levels government and utility inventories built up over the last decade
- Major mines are idled including Cameco’s Cigar Lake (due to covid-19) which accounts for 18m lbs or 13% of annual mine supply. The world’s largest uranium operation McArthur River was suspended back in July 2018 taking 25m lbs off the market.
- Permanent closures so far this year include Rio Tinto’s Ranger operation in Australia (3m lbs) and Niger’s Cominak mine (2.6m lbs) which had been in operation since 1978. Rio is exiting the market entirely following the sale of Rössing Uranium in Namibia.
- Like Cameco, top producer Kazatomprom which mined 15% less material last year due to covid restrictions has committed to below capacity production (–20% for the state-owned Kazakh miner) for the foreseeable future.
- Price reporting agency and research company UxC estimates that utilities’ uncovered requirements would balloon to some 500m lbs by 2026 and 1.4 billion lbs by 2035.
- Roughly 390m lbs is already locked up in the long term market while 815m lbs have been consumed in reactors over the last five years according to UxC
- There are 444 nuclear reactors in operation worldwide and another 50 under construction – 2 new connections to the grid and one construction start so far in 2021
- Much cheaper and safer, small modular nuclear power reactors which can readily slot into brownfield sites like decommissioned coal-fired plants (or even underground or underwater) are expected to become a significant source of additional demand
There are caveats to this rosy scenario however.
Morgan Stanley warns that “the opacity of the inventory situation remains a key uncertainty to price – see for example palladium, which needed almost 7 years of deficit before the price really took off.”
BMO says given the still high levels of inventories “acute shortages and price squeezes are extremely unlikely, both for this year and the foreseeable future,” adding that “there is no obvious need for new mine supply in the near future.”
