October 2, 2023

Clean Energy Demand & Dampening Uranium Supply Is Driving The Price Surge

Uranium prices have surged by almost 40% year to date.
Shift to nuclear energy is driving demand  for uranium.
Supply is dampened by recent developments in Niger.

Uranium Overview

Uranium is witnessing a remarkable resurgence, with prices surging almost 40% year-to-date to reach a 12-year record high of $70/pound, propelled by increasing worldwide interest in nuclear energy.

This renaissance can be attributed to several factors, including a diminishing supply and the continuously growing global thirst for sustainable energy sources, positioning uranium stocks for further expansion.

According to analysts' projections, prices have the potential to reach $80 per pound by the end of the year and are expected to continue rising year after year for the next 10 to 20 years, or until a viable alternative for large-scale, uninterrupted, and low-carbon power generation emerges.

This supply-demand imbalance creates a promising opportunity for prominent Canadian companies, namely Cameco Corporation and Orano Canada Inc., both of which are among the foremost uranium suppliers on the global stage.

What is driving the uranium price surge?

Uranium markets, like other mineral commodity markets, exhibit cyclical fluctuations, with prices rising and falling over the years. However, these cycles are overlaid on along-term trend of declining real prices due to technological advancements that reduce production costs at mines.

In the case of uranium, high prices in the late 1970s were followed by a period of depressed prices throughout the 1980s and 1990s, with spot prices falling below the cost of production for most mines. Spot prices experienced a recovery from 2003 to2009 but have been relatively weak since Fukushima Daiichi in 2011, which triggered a drop in uranium consumption and regulatory changes on nuclear power usage.

Mineral price fluctuations are driven by supply and demand dynamics as well as perceptions of scarcity. The demand-supply imbalance, coupled with other factors such as the growing use of clean energy and geopolitical factors like Niger disruptions, influences market prices.

Demand for uranium is pushing prices up.

One of the key factors deriving uranium demand is the move towards nuclear energy by many nations as the urge for sustainable power intensifies to address the issue of global warming. Approximately 440 reactors, totaling approximately 390 GWe incapacity, demand around 74,000 metric tons of uranium oxide concentrate, equivalent to 62,500 metric tons of uranium (tU) annually, including new reactor cores.

Over the next decade, demand for uranium is expected to continue to grow, with the World Nuclear Association’s Nuclear Fuel Report projecting a 27% increase in uranium demand due to an increase in nuclear reactor capacity of 16%.

Dampening supply triggers a price surge.

Current developments have led to a supply crunch, leading to a price increase. For instance, low production guidance and restart delays from Cameco’s projects in Athabasca and the military coup in Niger have affected global uranium supply. Niger accounts for around 4% of the uranium market supply globally.

In 2021, mines supplied 56,961 uranium oxide concentrate tons, comprising 48.303 tU, which is 77% of the annual requirement, with the balance comprising secondary sources. It is worth noting that Cameco and Orano are the main uranium suppliers in Canada.

At the start of the year, the Canadian Nuclear Safety Commission approved a 20-year renewal of the Cameco Fuel Manufacturing license in Ontario, which will allow the company to increase its production. The plant will enable the company to increase its limit by 24%, thus helping address declining supply.

What the Lotus Energy and A-Cap Energy merger means for the uranium market

Recently, Lotus Energy (ASX: LOT) acquired 100% interest in exploration company A-Cap Energy(ASX: ACB). The merger combines two complementary projects, offering scale benefits and enhancing funding opportunities. This results in the creation of an entity with the third-largest uranium resource among ASX-listed uranium companies.

According to Lotus Resources Managing Director Keith Bowes, the merger gives logistical synergies and knowledge-sharing prospects emerging from owning two Africa-based projects.

The state of the global uranium market

Uranium prices are on an upward trajectory and will continue for the next decade. According toa SP Angel mining analyst, the market is gradually seeing price increases due to rising mining costs and a growing desire among nuclear generators to stockpile uranium as a precaution against potential supply disruptions.

Canaccord analysts led by James Bullen and Katie Lachapelle indicated early in the week that the market is in a structural deficit, with secondary supplies declining and inventory levels remaining low. The analysts expect demand to grow at a CAGR of 36%through 2023 and 3.2% through the next decade. Downside supply risks and depleting inventories are also likely to drive global prices in the future.

Company Featured:
Lotus Resources (ASX: LOT)