Nuclear Pivot Update: Uranium Demand Drivers

Can’t Stop Won’t Stop the Nuclear Pivot

We’ve been covering the Nuclear Pivot for quite some time – a gradual move which has now become a 180 degree turn towards nuclear power as a short-term support during the energy crisis, and a long-term prospect for a low carbon future.  Monitoring changes in the uranium market are a priority as the world turns to nuclear energy.

The Ukraine / Russian conflict isn’t ending anytime soon. President Vladimir Putin announced today that Russia will partially mobilize their military reserves, a reaction to recent Ukrainian success in their counteroffensive in northeastern Ukraine.  As the conflict continues and is further compounded with inflationary pressures, European and global energy supply constraints have brought nuclear energy back into the spotlight.

We’ve taken a look at efforts of the UK, US and Germany to shore up their energy supplies in previous articles.  Let’s take a quick glance at Russia and China as the two nations continue to influence uranium demand.

What’s Russia Been Up To?

Russia currently operates reactors in 11 foreign countries, with plans to expand its markets in Central and Eastern Europe, the Middle East and Latin America. As of June 2022, a total of 17 WER reactors were under construction outside of Russia in Turkey (3), Iran (1), India (4), Slovakia (2), Belarus (1), Bangladesh (2) and China (4). Russia’s electricity production from nuclear continues to rise, reaching over 200 TWh in 2021.

Russia has been busy.

Russia is keeping busy, having influenced Hungary to build two nuclear reactors after the invasion of Ukraine started, to support Prime Minister Orban’s social programs and political prospects.

China?

China has plans for 30 overseas nuclear reactors as part of its Belt and Road initiative.  Chinese ambitions go beyond reactors – they control (Margot Rubin vid) % of enrichment capability etc.  China holds equity in mines in Niger, Namibia, Kazakhstan, Uzbekistan and Canada.

Uranium Prices

On the news of nations like Japan, the UK, and the US shoring up their nuclear production has spurred a Uranium price response this year, with prices soaring by more than 70% to $52/lb. Dave Olive, business columnist pointed out that today’s higher prices have spawned uranium exploration, in a mining cycle that usually ends with overproduction. While this is true, observing the historical prices – the last time we saw similar highs was in 2007, when uranium hit its record price of $140/lb. during the most recent “Nuclear Renaissance”.

2007 was a pivotal and informative year for the uranium market.

But this Time is Different…No, Really

The main difference in the market today is the political situation with Russia, which is quickly becoming a pariah in West. This changes the supply/demand dynamic, as the European Union looks to exclude Russian sources of energy.

According to the World Nuclear Association’s Nuclear Fuel Report, there will be a 27% increase in uranium demand until 2030. Demand is going to demand on new plant construction and retirement rates of older/obsolete plants. The Nuclear Fuel Report has a 38% increase in uranium demand from 2031 – 2040.

No Electricity Growth = No Economic Growth

It is our view that within a narrow scope of price, overproduction is a persistent threat as in all cyclical commodities. However, with electricity demand by 2040 potentially increasing by 50% by 2040 (based on the IEA’s World Energy Outlook) there is a lot of room for growth in nuclear capacity. Another persistent threat moving forward is inflationary and militarily driven geo-political uncertainty.  As a result of this framework, there has been an uptick in onset of long-term contracts, as worldwide utilities seek to ensure a steady uranium supply.

Uranium Contracting Volumes vs Price

Geo-political threats are a sentiment game changer for nuclear. Global governments are shoring up supplies, as uranium sources are mainly in the hands of perceived authoritarian regimes.

The majority of uranium supply is in the hands of regimes the Western nations don’t like

There is a clear opportunity for large suppliers to take advantage of these market conditions, as customers look for reliable suppliers that can engage in contracting at all stages of the nuclear fuel demand cycle. So, for the interim we can anticipate uranium prices to remain strong over the next few quarters, as competition for these contracts heats up – but will continue to lag demand for this low carbon-emission source of energy.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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