The uranium market may change noticeably in the coming years. The desire of countries to reduce harmful emissions and hopes for a new “nuclear renaissance” are already attracting new investors to the segment. Kommersant understood how the transformation of a rather conservative market could affect Russia.
The uranium market, which has been in stagnation in recent years, is showing signs of recovery. In March, at least six non-manufacturing companies unexpectedly made a series of investment deals in the hope of price increases, according to a quarterly report by the largest uranium producer Kazatomprom. Spot transaction volumes in January-March reached 21 million pounds of uranium oxide U308 (8.2 thousand tons of uranium), an increase of 17% year-on-year. Prices immediately jumped 11% to $ 31 a pound.
Interest in uranium will continue to grow, analysts and investment banks say. The main driver of the market will be the desire of countries to reduce CO2 emissions to zero by the middle of the century. Nuclear power, whose output is more predictable than solar and wind power plants, can play an important role in this process, according to a recent report from the International Energy Agency (IEA). The IEA recommends to quadruple the pace of construction of nuclear power in the world by 2030, up to 24 GW per year. And according to forecasts of leading investment banks, uranium prices will rise to $ 40 by 2023 and $ 45 by 2025, says Anton Bolotov from KPMG.
Game at a cost
The uranium market has experienced several ups and downs. The first rise in prices to about $ 80 per pound of U3O8 coincided with the height of the Cold War (mid-1950s), then prices jumped over $ 100 against the backdrop of the oil crisis in 1975, and the last sustained rise since the early 2000s against the backdrop of the “nuclear renaissance “. But in March 2011, quotes fell sharply after the accident at the Fukushima-1 nuclear power plant. Before the accident, a pound of nitrous oxide cost $ 70, and then dropped in price by almost three times in five years. The all-time low was $ 18.
The market has still not recovered from this decline, although over the past three years, quotations have increased by almost 50% – from $ 21 to the current $ 31 per pound of U3O8, says Anna Bryndza of the consulting company UxC.
First, prices were influenced by Kazatomprom (23% of world production), announcing an annual production cut of 20% from the level of subsoil use contracts. For example, in 2017–2019, the company produced 67.8 thousand tons of uranium, having reduced volumes by 13.5 thousand tons. In 2020, production collapsed due to a pandemic: production was suspended or reduced in Kazakhstan, Canada, Namibia and Australia. The volume of spot transactions last year reached a record 29.8 thousand tons of uranium, or almost 60% of sales. For comparison: in 2019, the spot market accounted for 34%, the rest of the volume went under long-term contracts (from one year) with higher prices.
But current prices are not enough to sustain production, market participants say. Thus, in 2019, the total cost of about 40% of world uranium production was, according to Kazatomprom’s estimates, higher than the average annual spot price ($ 24.8 per pound). The continuation of the production of expensive uranium can be explained by the fact that contracts for it were concluded during a period of high prices.
What you store is what you sell
The market is under pressure from large volumes of reserves, which were formed during the Cold War, when uranium was mined mainly for the production of weapons. Only after 1990 did part of the reserves hit the market, and production fell below the needs of the nuclear power plant. This trend continues to this day.
The main consumers of uranium in the world are 443 nuclear power units with a capacity of 393 GW. In 2019, world production amounted to 54 thousand tons, and the consumption of all nuclear power plants was approximately 65 thousand tons. In 2020, uranium production fell to 47.5 thousand tons, while the consumption of nuclear power plants increased to 68 thousand tons.
The gap between production and consumption is closed by reserves, but nobody knows their real size. According to IAEA estimates, the maximum amount of reserves potentially available for the commercial sector could be 525 thousand tons of uranium. But “only a very small proportion of the reserves (roughly 10%) can be relatively easily resold,” said Askar Batyrbaev, chief commercial officer at Kazatomprom. According to him, the bulk of stocks is either strategic, or is under restrictions, or in a form that does not suit a potential buyer.
The IAEA has recorded a decline in reserves in recent years, but secondary resources still play an important role. According to UxC’s Anna Bryndza, in 2021 the volume of secondary supplies on the market will be about 50 million pounds of U3O8 (about 19.3 thousand tons of uranium), or 28% of demand. The constraining factors for prices are also the high share of producers with low costs, limited growth in demand and a high level of contracted needs, says Askar Batyrbaev.
Uranium mining is only one of the stages in the production of nuclear fuel. After primary processing, uranium is converted into UF6 (hexafluoride), then enriched (up to 2–6% in most types of reactors) and goes to factories for the manufacture of fuel. Uranium mining is the most profitable business segment, followed by enrichment services in second place, as follows from Kazatomprom’s materials for the 2020 Investor Day.
Rosatom ranks second in the world in terms of production – about 7.1 thousand tons in 2020 (15% of world production). The share of production within the Russian Federation at the fields in the Trans-Baikal Territory (PIMCU), in Buryatia (Khiagda) and in the Kurgan Region (Dalur) is about 40%, or 2.85 thousand tons in 2020. Foreign production is carried out by Uranium One (U1, part of Rosatom), now only in Kazakhstan through a joint venture with Kazatomprom.
In the long term, the rise in prices will contribute to the resumption of production at the mothballed fields and the development of undeveloped fields, believes Anton Bolotov from KPMG. But first of all, it will be profitable to develop mining in countries with cheap uranium (the cost price is less than $ 30 per pound of U3O8). These resources are mainly concentrated in Kazakhstan, Canada, Brazil, China and South Africa. Prospects for expanding production in the Russian Federation are unclear: the country is dominated by reserves of the most expensive categories of uranium with a cost price of $ 50-100 per pound. At the same time, the market situation may have a positive effect on U1’s foreign assets (see interview).
“The first wave of new mining will not come from new mines, but from suspended ones. This concerns both the return of uranium production in Kazakhstan to the planned levels, and the resumption of production at the Cameco McArthur River project in Canada, ”says Anna Bryndza.
Against the backdrop of a new “nuclear renaissance,” Russia may receive a number of other advantages: new orders for the construction of nuclear power plants, conversion and enrichment of uranium, and fuel production. Now Rosatom is the world’s leader in enrichment (36%), and in the fuel market it ranks third (17%) after the American Westinghouse and the French Framatome.
“On average, one power unit is under construction for about five years, and fuel for it can be supplied for at least another 60 years with its design life. The revenue from fuel supplies for the entire life cycle can be no less than from engineering contracts. At the same time, unlike construction, fuel supplies do not require tied export credits from the supplying country and are financed by the customer himself as part of the operating activities of the power plants, ”Natalya Nikipelova, President of TVEL (Rosatom’s fuel division), told Kommersant. The share of uranium in the cost of fuel in world practice can reach up to 50%, she notes.
At the same time, steadily rising prices for uranium, in theory, can make it more profitable to reprocess spent nuclear fuel (SNF) for further use in the fuel cycle. The volume of accumulated spent nuclear fuel, according to Atomenergoprom, has already exceeded 300 thousand tons of heavy metal. Only 2 thousand tons per year are processed. In the long term, the development of recycling technologies should help keep the prices of uranium products low, Ms. Nikipelova notes. And the transition to a closed fuel cycle is associated to a greater extent not with the prices of raw materials, but with the priorities of the long-term sustainable development of the nuclear industry, she said.
New nuclear renaissance
In the baseline scenarios of consulting companies and international agencies, the capacity of nuclear power plants by 2030 will grow to 420–440 GW. According to the baseline scenario of the World Nuclear Association, the demand for uranium by 2025 will increase to 75 thousand tons, and by 2030 – up to 85 thousand tons of uranium.
However, hopes may not be justified. The main question is whether nuclear power plants will be recognized as a green energy source in developed countries, the struggle for this continues, says Aleksey Khokhlov from the Skolkovo Energy Center of the Moscow School of Management: “The EU taxonomy included the criterion that the technology should not cause significant harm to the environment. which will be a challenge for nuclear power in terms of radioactive waste management ”.
EY Parthenon partner Anton Poryadin does not expect much growth in the construction of traditional nuclear power units (1 GW) in developed countries: “They are expensive and time-consuming to build (about ten years), and they do not fit well with the urgency of the climate change agenda and an increasingly decentralized balanced energy system.” … Even if nuclear energy gets into green renewable energy sources in the EU and the United States, this will mean the operation of existing nuclear power plants, and not their accelerated decommissioning, the analyst said. The total capacity of large projects under construction is estimated at 52 GW, more than half of which are in Asia – China, India, Pakistan, says Anton Poryadin. Perhaps this will spur uranium prices, but not too much – all these plans are already known.
One of the main obstacles to the rapid development of nuclear power plants is the rise in construction costs associated with increased safety requirements and decommissioning costs. According to Lazard’s calculations, the LCOE (Life Cycle Cost of Generation) of nuclear power plants has grown by 23% over the past ten years and ranges from $ 129 to $ 198 per 1 MWh, depending on the discount rate, says Anton Poryadin. Total CAPEX – from $ 5.5 billion to $ 8 billion for 1 GW. Among traditional generation, only peak gas generation has approximately the same LCOE.
However, with the constantly growing payment for harmful emissions, coal and gas thermal power plants will become more expensive. And the installation of CO2 capture systems increases the LCOE of thermal generation by more than 40-60% and makes it economically uncompetitive, according to the annual report of Atomenergoprom. In addition, a breakthrough is possible in modular nuclear power plants of low power, which will solve the problem of cost and timing, especially for hard-to-reach regions, says Anton Poryadin.