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Uranium Market

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Uranium Uses

The only significant commercial use for U3O8 is as a fuel for nuclear power plants for the generation of electricity.  Through the process of nuclear fission, the uranium isotope U‑235 can undergo a nuclear reaction whereby its nucleus is split into smaller particles.  Nuclear fission releases significant amounts of energy, creating heat to generate steam to spin a turbine, and is the basis of power generation in the nuclear industry.

Uranium has other commercial uses in the fields of medical diagnosis and other industries, but these markets are very small in terms of volume.  For example, uranium is used as a feedstock in smaller nuclear reactors, globally, which are operated for research purposes and for the production of isotopes for medical and industrial end uses.

Uranium Production Process

The initial step in the process of preparing uranium for use in a nuclear reactor is the mining and upgrading of the ore in a uranium processing facility to produce uranium concentrates containing 80-90% U3O8.  Uranium concentrates are priced and sold based on the U3O8 content.

The second step in the nuclear fuel cycle process takes place at licensed uranium conversion facilities where U3O8 is converted to UF6 (or to natural UO2 for Candu type reactors).  Above 56 degrees Celsius, UF6 is a gas and is in a suitable form to be enriched to produce fuel for the majority of reactors.  Following this UF6 conversion, the uranium is enriched and then fabricated into fuel bundles, at which point it is ready to be loaded into a nuclear reactor.

Fiscal 2020 Uranium Industry Overview

Much of fiscal 2020 was defined and influenced by policy matters in the United States ("U.S."), which have effectively created an overhang of uncertainty throughout the uranium market. In July 2019, the U.S. Presidential Administration completed an investigation into a trade petition, launched under Section 232 of the Trade Expansion Act of 1962 ("Section 232"), and no trade actions were implemented. The U.S. President indicated that the Administration's investigation did not agree with findings of the U.S. Department of Commerce ("DOC") that uranium imports threaten to impair U.S. national security. This announcement was expected to provide clarity to the uranium market; however, the Administration followed the decision with an order to review the nuclear fuel supply chain in the U.S. Accordingly, a Nuclear Fuel Working Group ("NFWG") was commissioned to examine the current state of domestic nuclear fuel production to reinvigorate the entire nuclear fuel supply chain, consistent with U.S. national security and non-proliferation goals, and to make recommendations to further enable U.S. domestic nuclear fuel production, if needed. A report from the NFWG was submitted to the White House in late 2019 and the NFWG reported its findings on April 23, 2020, which among other recommendations included a plan to budget US$150 million per year, in each of the next 10 years, for uranium purchases from U.S. producers, to increase that nation's strategic reserve. The long-awaited report ended a significant period of uncertainty and disruption in the nuclear fuel market that commenced with the Section 232 trade petition.

Another source of uranium market uncertainty stemmed from policies relating to Russian deliveries of nuclear fuel into the U.S. Since breaking from the Joint Comprehensive Plan of Action with Iran, commonly known as the Iran Nuclear Deal, the U.S. Administration has put in place sanctions against Iran. The U.S. has also issued waivers to certain of Iran's trading partners, allowing entities from particular nations, including Russia, to continue working with Iran on civilian nuclear programs. On December 15, 2019, one of those waivers, related to Iran's Fordow Fuel Enrichment Plant, was lifted, which raised concern among market participants regarding the possibility of other waivers being revoked. The waiver causing uranium market participants most concern relates to the Bushehr nuclear power plant, which Russia is involved in building. If this waiver is revoked, there is concern that Russia could face sanctions in the U.S., which would halt deliveries of Russian nuclear fuel to U.S. utilities and represent a significant supply-side development.

Also relevant to Russian nuclear fuel supply into the U.S. is the Agreement Suspending the Antidumping Investigation on Uranium from the Russian Federation (also known as the Russian Suspension Agreement, or the "RSA"), which established an annual quota limiting the delivery of nuclear fuel into the U.S. from Russia. This agreement is set to expire at the end of 2020 and is currently under review. Before the agreement expires, a decision needs to be made by the U.S. DOC as to whether there will be an extension and, if so, whether it will be under existing or revised terms. If the RSA expires, Russian-origin uranium products and services could be sold into the U.S. without any restrictions -- adding further uncertainty to the uranium market. It is generally expected that a decision will not be made until close to the end of calendar year 2020.

Uncertainty related to these policy matters contributed to a soft uranium price throughout fiscal 2020, with the spot uranium price trading within a narrow band and weakening over the period. The spot price started the fiscal year at US$28.00 per pound U3O8 and ended the year down almost 12% at US$24.70 per pound U3O8.  During calendar 2019, spot uranium volumes remained quite strong at 65 million pounds of U3O8, though much of this demand was related to buying and selling between intermediary parties rather than end-user buying, which limited the positive impact on the spot price.

Despite the continued price weakness, there are several indications that uranium supply and demand fundamentals are improving underneath the cloud of uncertainty that dominated the market in fiscal 2020. This was underscored in the bi-annual Nuclear Fuel Report released by the World Nuclear Association ("WNA") at its annual symposium in September 2019. The report evaluates nuclear fuel demand and supply scenarios for the period from 2019 to 2040, using reference, low and high cases. For the first time in several years, the WNA's outlook for global uranium demand increased for all three scenarios, which is positive for the outlook on demand and reflects industry consensus that the demand picture has improved significantly in recent years.

Recently, events related to the COVID-19 pandemic have begun to impact the nuclear fuel market. On March 23, 2020, Cameco Corp. announced the temporary suspension of production at its Cigar Lake mine in northern Saskatchewan, which is the world's largest operating uranium mine. In conjunction with this announcement, Orano Canada Inc. suspended operations at the McClean Lake mill, which currently processes the ore from Cigar Lake under a toll milling agreement. Annual uranium production from these sites is approximately 18 million pounds U3O8. Subsequent to its original announcement, and following growing concern about COVID-19 in northern Saskatchewan communities, Cameco indicated that this suspension would be extended for an indeterminate period.  Similar production restrictions were announced by Kazatomprom in respect of various operating uranium mines in Kazakhstan.  Estimates from Kazatomprom indicate that the production restrictions are expected to last at least three months and will result in a reduction in production from uranium mines in Kazakhstan of roughly 10.4 million pounds U3O8 if the production changes are contained to this period.   Regardless of the ultimate duration of these supply disruptions, the production response to the COVID-19 pandemic is a significant unexpected supply-side event for the nuclear fuel industry. In less than 6 weeks, beginning in mid-March, the spot price of U3O8 had risen more than 40%, to above US$34.00 per pound U3O8. As the COVID-19 situation continues, there is the potential for other uranium mining and processing facilities to be impacted and for the duration of the Cigar Lake and Kazatomprom production disruptions to be extended.  In contrast, uranium demand has remained inelastic, with nuclear power plants around the world continuing to operate during the COVID-19 pandemic, providing reliable base-load energy to critical community infrastructure.

Also impacting the current outlook for nuclear energy are many positive news stories on the demand side that have emerged in recent months, including increasing public recognition of the critical role nuclear energy must play in combatting climate change. 

  • One of the most significant acknowledgments of this was made by the European Union ("EU"), with its leaders recently agreeing that nuclear energy must be included as part of the solution required to meet the EU's goal of becoming carbon neutral by 2050. The EU's 'European Green Deal' officially acknowledged the importance of nuclear energy in meeting the region's comprehensive climate action goals.
  • In the US, there were a number of positive announcements through the course of fiscal 2020. In Ohio, a long-awaited energy bill was passed supporting the continued operation of the Davis-Besse and Perry nuclear power plants. Previous attempts to secure subsidies for these plants were unsuccessful, which had led most in the industry to believe the plants would be shut down by calendar year 2021.  Recognizing the long-term viability of existing nuclear power plants, Florida Power & Light's Turkey Point nuclear units 3 and 4 received approval for an additional 20 years of operating life from the U.S. Nuclear Regulatory Commission ("NRC"). This additional extension will take the reactors to a total of 80 years of operating life, which is the longest license ever issued by the NRC. Turkey Point 3 and 4 are now licensed to operate to 2052 and 2053, respectively. More recently, Exelon's Peach Bottom units 2 and 3 joined this trend when they were granted similar license renewals which take the operating life of the plant to 80 years.   There was also positive new-build news in the U.S. as Southern Company indicated that it is on track to meet the November 2021 and November 2022 in-service dates for its Vogtle units 3 and 4, respectively.  The company also indicated that it is working to bring them online ahead of schedule -- possibly by May 2021 and March 2022. And further reinforcing the growing importance of nuclear in the fight against climate change, Dominion Energy, Duke Energy and Xcel Energy have announced plans to deliver 100% carbon-free electricity by 2050, which will include extending the lifespans of their respective nuclear plants.
  • In Mexico, the country's national nuclear utility, the Federal Electricity Commission, is considering building four new nuclear reactors, to add to its existing two units at Laguna Verde. The utility shared its plans to present a feasibility study to management and the government in calendar 2020. The study will examine a project to build 1,400 megawatt ("MWe") reactors, with an estimated cost of US$7 billion each. 
  • In Canada, with the longer-term future of nuclear in mind, the provincial governments of New Brunswick, Ontario and Saskatchewan demonstrated support for future nuclear new builds. The leaders of these provinces announced that they had joined efforts to collaborate on advancing small modular reactor ("SMR") technologies. The leaders see SMR's as a practical solution to help curb carbon emissions, move away from coal-fired power generation, and create an opportunity for new economic growth in the provinces.  The federal government also recently highlighted its support for nuclear energy when its Minister of Natural Resources, Seamus O'Regan, spoke at the Canadian Nuclear Association's annual conference and explained that affordable, safe nuclear power is the key to reaching Canada's climate goals.
  • In Germany, positive sentiment towards nuclear also appears to be growing. In 2019 the government received escalating calls from several of the country's most prominent businesses to delay the country's plans to implement a full-scale nuclear phase-out by the end of 2022. Some of these businesses emphasized the importance of nuclear power, highlighting that Germany needs to run its nuclear power plants longer if climate protection really matters to the country.
  • In India, the government continued to demonstrate its commitment to increase its use of nuclear energy. At a recent nuclear conference, the Chairman of India's Atomic Energy Commission and Secretary of the Department of Atomic Energy reinforced the country's aggressive pursuit of new nuclear power plants in order to improve the reliability of the country's power supply. The government's Union Minister for Atomic Energy also confirmed that there are currently nine reactors under construction in India and indicated that the government had given administrative and financial support to build an additional 12 new reactors with a capacity of 9,000 MWe.
  • In South Korea, KHNP announced the successful start-up of its Shin Kori 4 nuclear power plant. Initial criticality was reached and the unit was connected to the grid in April 2019. The Shin Kori 4 unit is a 1,400 MWe APR-1400, which is the same design as those currently under construction in the United Arab Emirates at the Barakah nuclear power plant, which is expected to begin supplying electricity in early 2020.
  • In Taiwan, sentiment has shifted away from a previous policy to eliminate nuclear power from the Taiwan energy mix. In May 2019, the country passed an amendment to eliminate the 'Nuclear Free Homeland 2025' mandate that was imposed by the anti-nuclear Democratic Progressive Party in early 2017. This amendment has opened the door for future pro-nuclear decisions to be made regarding extending the lives of existing nuclear power plants in the country, as well as the possible completion of the Lungmen nuclear power plant, where construction was halted in 2014.

Though much of the nuclear news out of Asia was positive, news emerged from Japan early in calendar 2019 that the requirements set out by the country's Nuclear Regulation Authority ("NRA") for utilities to complete anti-terrorism protection work on each reactor's emergency facilities were unlikely to be met on schedule. All three utilities currently operating nuclear power plants in Japan have said they require between one and two and a half additional years to complete the required work. The NRA has indicated, however, that it will not extend the deadline. Due to this, it was recently announced that reactors 3 and 4 at the Takahama nuclear power plant will stop operating by the summer of 2020, with work aimed at meeting the NRA commitment about one year behind schedule.

Overall, uranium demand has grown in recent years, having now exceeded the annual levels that existed prior to Japan shutting off all of its nuclear units following the 2011 Fukushima Daichii nuclear incident.

Even prior to the recent supply shock created by COVID-19, the supply side of the uranium market had been progressing in the right direction.  This has resulted in a growing gap between annual utility requirements and primary production, which continues to be filled by drawing down on inventories and other secondary sources of supply. Some of these positive supply indicators include:

  • The world's largest and lowest cost uranium producer, National Atomic Company Kazatomprom, announced in August 2019 that it was reaffirming its commitment to reach and maintain a more commercial balance between supply and demand by extending its 20% production curtailment through to 2021.
  • In Canada, Cameco has continued to reinforce that it will keep its flagship McArthur River operation closed until market conditions improve, removing 18 million lbs from the market annually. Cameco confirmed in its 2019 year-end results that it would purchase between 20 and 22 million lbs in 2020 in order to meet delivery commitments.
  • Other important supply side changes included Rio Tinto finalizing the sale of its Rössing operation in Namibia to China's China National Uranium Corporation. Taken together with the slow wind down of Rio Tinto's Ranger operation in Australia, we expect to see Rio Tinto, one of the world's largest mining companies and a long-term major producer in the uranium industry, completely exit the market.
  • In Niger, it was announced that the Cominak mine will cease operation in March 2021, due to depletion of ore. The operation has been a source of supply to the industry since 1978.