Commodities | 11:15 AM
-Nuclear energy, a wee history
-Factors setting up the growth in demand for uranium
-History suggests nuclear energy build out is possible
-Geo-politics collide with the need to grow uranium supplies
By Danielle Ecuyer
Setting the uranium stage
Title of the week "Nuclear revival is going to need a lot more uranium" is delivered by RBC Capital Markets.
The primary driver of uranium demand is for use in nuclear reactors. There are some 438 reactors operational globally with another 173 planned. Current nuclear generation represents 10% of global electricity supply and 19% in the USA.
In terms of demand for uranium, the US, China, and France represent around 58% of global demand. Major producers are Kazakhstan, Canada, and Australia, combined at over 70% of global uranium production in 2022.
Historically, three major incidents have defined the evolution of the nuclear power industry. First was Three Mile Island in 1979 with a partial meltdown of the reactor. Then followed Chernobyl in 1986 in the Ukraine, then part of the USSR, which experienced a catastrophic explosion. Fukushima Daiichi happened in 2011, which also experienced a meltdown post an earthquake and tsunami.
These accidents have impacted, in large part, on government policy and public perception.
The uranium price dropped sharply post-Fukushima due to lower demand, and by 2016 the price had declined to US$20/lb. From 2017-2020, the uranium price recovered to US$30/lb and has rallied since to hit a high of US$104/lb in January 2024 midst concerns around rising geo-politics and growing demand for nuclear energy.
Where to now for uranium demand and prices?
RBC Capital Markets calculated every 10% lift in the energy mix from nuclear energy generation results in 6% incremental growth in uranium demand by 2040 or 15mlbs.
Placing this in context, global supply is estimated by the broker at 181mlbs in 2025. While this might seem relatively insignificant, the issue for uranium mining centres around the slow lead times to advance supply in response to demand-side changes.
RBC's deep dive into the uranium market reveals a 12% lift in demand above the base case results in a 60% increase to the expected 2040 deficit to over -80mlbs.
The broker estimates the average incentive price for a supply-side response for 30mlbs-50mlbs, with an internal rate of return between 15%-30%, at US$95/lb compared to the current spot U308 price around US$80/lb-US$85/lb.
Global nuclear energy is forecast to grow at a compound average growth rate of 2% p.a. through to 2040. When combined with the very long life spans between 60-80 years of nuclear reactors, the resulting demand for uranium will remain "sticky".
Citi believes global uranium prices will be more sensitive to policy changes in developed markets in the future. During COP29, the White House detailed a framework for tripling nuclear capacity by 2050.
Under President Trump's first term uranium prices averaged US$25/lb, post the Fukushima episode. With the current change in demand/supply dynamics, Citi expects the uranium price to trade in a range between US$70/lb to US$90/lb with a rise to US$110/lb in 2026.
However, Trump's proposed 25% tariff on Canada would likely result in higher uranium prices for US utilities as Canadian imports represent around 25% of US requirements and US producers have been slow to ramp up, RBC explains.
Citi highlights longer-term goals for growth in nuclear capacity from data centre demand for clean power and energy independence. Though these trends will not necessarily eventuate in "overnight demand for nuclear fuel and are likely to be more pronounced closer to 2030".
RBC is very upbeat, anticipating global uranium requirements to advance 50% by 2040. This broker forecasts an average uranium price of around US$90/lb from 2025-2028. With a significant supply deficit emerging by the mid-2030s, RBC anticipates supply to cover only 80% of demand, which will require an incentive price at circa US$100/lb to generate the required supply response.
Morgan Stanley's recent negative stance on the uranium price for most of 2024 has reversed, with this broker now seeing an improved risk/reward dynamic.
Supply is being challenged from Russia's temporary export ban on enriched uranium and cuts in Niger production, with French company Orano placing Niger's only operating mine at 3% of global supply into care and maintenance from transport issues. Junior miners are also experiencing ramp-up problems.
The broker envisages around -2,600t uranium supply cuts across 2024/2025, versus Cameco's 1mlb or 365t increase in 2024 guidance from McArthur River's improved performance. Miners might be forced to buy in the U308 spot market to meet off-take agreements, Morgan Stanley highlights, creating a "tighter balance" for 2025.
Does history reveal any lessons?
Looking longer-term, Citi believes recent developments in the US represent a new start and wave in nuclear energy, akin to the 1970s and 1980s when rising energy demand collided with geopolitical instability.
Of the 94 reactors in use in the US, 92 were built between 1970-1990, and within this context, Citi articulates the tripling of nuclear energy capacity over the next 25 years might be possible, although financing and alternative energy sources could prove challenging.
The framework, as outlined at COP29, looks to the potential for building new large-scale, gigawatt-scale reactors.
Citi proposes the bull case and puts forward six new large reactors to be built by 2040, while acknowledging the plans should be undertaken sooner rather than later, given the lessons learned from Vogtle 3 and 4 alongside the retention of the labour force.
Small modular reactors are proposed as the next option, with a base case of three commercialised before 2035, with developments in the US lagging Canada and Russia.
Lastly, utilities are seeking to extend existing life spans of reactors to 80 years and, in some cases,100 years. Citi notes six reactor extensions have been approved, and another sixteen are under review, with a further eighteen future applications announced.
As a result of increased reactor life spans, Citi forecasts uranium demand to be higher by 3mlbs in 2030, 13mlbs in 2040, and 17mlbs in 2050.
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