Commodities Corner: Interest in nuclear energy is growing with uranium output lagging demand

“In my 20-plus years in this industry, this is perhaps the best set up for nuclear power expansion that I have ever seen,” Hinze told MarketWatch. “A confluence of drivers, including the need to reduce carbon emissions, as well as increasing focus on energy security are propelling nuclear power forward in most major markets across the globe.”

That’s “naturally translating” to rising demand for uranium, with 1% to 2% annual growth at a minimum anticipated over the next few decades, he said.

The nuclear power industry has garnered renewed attention in the wake of the July release of the Oppenheimer movie, which tells the story of J. Robert Oppenheimer, among the creators of the atomic bomb. Uranium production, meanwhile, has declined from five years ago, contributing to a rise in prices to their highest in over a year.

Read Living With Climate Change: Modern-day Oppenheimers see the future of nuclear energy — and it’s mobile   

Weekly spot uranium prices stood at $58.25 a pound as of Aug. 21, the highest since April 2022, according to data from UxC. That’s up around 22% year to date.

Uranium supply

This year’s rise in prices is due in part to a realization that investment in uranium supply lagged in the decade after Japan’s Fukushima nuclear accident, said William Freebairn, associate editorial director, nuclear power/uranium prices at S&P Global Commodity Insights.  

On March 11, 2011, Japan suffered from its largest-ever recorded earthquake, and massive tsunamis created by the quake flooded the Fukushima Daiichi power plant — leading to the worst nuclear disaster in a quarter century.

The disaster had “profound” impacts on both uranium supply and demand through a “deep and prolonged bear market,” said Scott Melbye, executive vice president at mining company Uranium Energy Corp.
UEC,
+1.20%.
The long period of low prices did not incentivize new uranium mine developments and the market is now “headed into this growth phase with a structural deficit in uranium supplies,” said Melbye, who’s also CEO of Uranium Royalty Corp.

Total world uranium production was at 48,888 metric tons in 2022, up from the last couple of  years but down from 60,514 metric tons in 2017, according to data from the World Nuclear Association.

“Uranium output has been ticking along, with the slow rebound from historic curtailment due to oversupply of the market [and] COVID related issues ongoing,” said Katherine Matthews, associate research analyst, metals and mining at S&P Global Commodity Insights.

But Melbye pointed out that current uranium production lags global consumption by more than 50 million pounds per year. There’s an “urgent need to bring new mines in a market that has provided little incentive to do so in recent years,” he said.

So while uranium prices have climbed to $58 a pound or more, that will only incentivize the world’s most competitive mines, said Melbye. “Significantly higher prices will be required to justify large capital investments in new mine capacity.”

Demand for nuclear power

Global energy markets, meanwhile, have seen nuclear power in a new light when it comes to safety following Japan’s nuclear disaster, particularly in the context of efforts to provide clean energy.

Read archived story: Nuclear power proves its resilience a decade after Japan’s Fukushima disaster

The U.S. saw its first newly-constructed nuclear unit come into operation in more than 30 years at the end of July, and Georgia Power Co. expects to place another unit into service later this year or the first quarter of 2024.

In the U.S. and Canada, new technologies, starting with small modular reactors, are being planned for in growing numbers, said S&P Global Commodity Insights’ Freebairn.

In Eastern Europe, many countries are turning away from Russia as a supplier for their nuclear industries, leading Poland to plan an “ambitious program of nuclear energy deployment,” while other countries, such as the Czech Republic and Romania, look to expand existing nuclear power programs, he said.

“Growing interest in nuclear energy is being seen around the world,” said Freebairn, noting this his company has been highlighting events in Eastern Europe and North American.

For now, nuclear power provides around 10% of the world’s electricity, according to the International Energy Agency.

It comes from roughly 440 reactors in 31 countries with about 390 gigawatt electrical (GWe) capacity, according to UxC’s Hinze. If total power demand grows by 2% to 3% as agencies like the IEA predicts over the next 10 to 20 years, and nuclear power keeps it share of the total in the 8% to 10% range, then Hinze expects nuclear power should reach at least 500 GWe by 2040 and as high as 550 GWe.

That would represent a roughly 40% growth over the current market size, he said.

There are potential downside risks to nuclear power growth, including competition from fossil fuels and renewables, but since nuclear power is “already not a huge share of the market, it would make sense that its growth can continue regardless of how the other energy fuels fare,” Hinze said.

Stocks and investment

Against that backdrop, uranium exchange-traded funds and shares of uranium-related companies have climbed so far this year.

The nuclear market has been “holding its own despite some broader losses in the financial markets in recent months,” said Hinze. “While recession fears and other macroeconomic factors continue to weigh on the broader market, it seems like nuclear power and the companies in this sector have not been excessively harmed by these trends.”

Year to date as of Aug. 22, the Sprott Uranium Miners ETF
URNM
has climbed nearly 18%, while the Global X Uranium ETF
URA
has added almost 16%, FactSet data show. Uranium fuel provider Cameco Corp.
CCJ,
-0.17%
is up nearly 60%.

“Despite these impressive recent gains, most are still trading well below historic highs,” said Melbye. “This would indicate that we are still at a very early stage in the uranium market recovery.”