Uranium, is this the commodity for future?


  • What was the role of Fukushima Daiichi disaster?
  • Did production cuts from Kazatomprom help?
  • An analysis of 5 major uranium producers in the world


The global uranium market remained under tremendous pressure during the past ten years, this was mostly driven by the skewed demand-supply equation and pushed the commodity into surplus. However, the metal was one of the best commodities prior to the recession (2002-07). Uranium’s spot price reached the record level of USD 136/lb U3O8 (USD 354/kgU) during 2002-07. Its spot prices also jumped over 13 times during the period and touched historic levels in 2007. This upsurge was principally driven by speculation over an anticipated increase in demand, which created an artificial bubble in the market.

This substantial rise in the international prices incentivised producers to enhance their production plans, this included expansion of existing mines as well as plans to open newer ones. However, there was a negative impact of high prices, which forced power generation companies to reconsider the capacity expansion strategies. This changed the scenario as consistently high prices and corporate reconsidering uranium as a fuel for power generation added to weaker demand scenario for all commodities during the global financial and economic crisis (2007-08). The industry witnessed a sharp drop in prices, which continued in the following years.

In addition, the weakness in the actual demand for uranium was witnessed following the Fukushima Daiichi disaster in Japan (2011) owing to the tsunami. The nation, which was Asia's biggest producer of nuclear power closed all its nuclear plants for safety audits. The calamity also forced other countries to reassess their expansion plans. Moreover, a significant number of existing power plants needing re-haul were shut down in Germany, Japan and the United States. This coupled with increased supply (from production, stockpiles and secondary sources) resulted in the extended price decline.

In the past few years, uranium supply has been adequate to meet the demand and there was no shortage of supply. The global supply was met by a blend of sources which included inventory and re-processing apart from the usual mined supply. The largest input came from the primary production which over the years satisfied as much as 50-90% of world’s requirement. The remainder was provided by the secondary sources such as stockpiles of natural and enriched uranium, blending down weapons-grade uranium, reprocessing of spent fuel, underfeeding and uranium produced by the re-enrichment of depleted tails.

Further, in order to support prolonged recovery in the uranium market, Kazatomprom (Kazakhstan state-owned firm and the world’s largest uranium producer) recently announced its plan to cut production by 10% (by end of 2017). This is expected to rake out over 2000 Mt U (MT of Uranium) or around 5.2Mlb equivalent or approximately 3% of the global uranium production (2015). Thereafter, the Canada based Cameco, the world’s second-biggest uranium producer (April 2017) cut output at its select mines and announced that it might go for another round of production cuts. These decisions stem from the oversupply that contributed to a sustained drop in prices wherein the industry witnessed a slump to a 13-year low of $18 per pound in Nov. 2016.

The downward spiraling of prices since 2007 also found its reflection in the financial performance of companies operating in the industry. Televisory evaluated key operational and financial metrics for 5 major players around the world namely, Kazatomprom, Paladin Energy, Cameco Corp., Uranium One and Energy Resources Australia. Furthermore, falling spot prices, which averaged below a $45 mark (since 2008 up to end 2016) did weigh on the revenue realizations of the companies. While these firms were able to maintain a moderate positive gap in realization over and above the spot prices, but, they too suffered from a drop. The positive gap is backed by the fact that nuclear fuel deals often involve long-term contracts between miners and utilities. Although the companies were able to maintain a balance in sales volume, the EBITDA margin fell consistently due to a decline in the prices of uranium affecting core operations.


Additionally, producers, those were protected from low market prices under long-term contracts begun to emerge out of this protection and presently, power generation companies are moving away from long-term contracts to spot market (driven by lower spot prices). Thus, there has been delays and cancellations in new mine development projects and reductions in primary production. In February 2017, TEPCO, the owner of Fukushima nuclear plant made it clear that it was scrapping its uranium supply contract with Cameco. Hence, these developments continue to negatively impact the markets and might negate the positive occurrences such as production cuts from Kazatomprom, among other players. Therefore, in short-term, the uranium prices are expected to remain under pressure as current stockpiles and secondary sources are sufficient to meet the demand.

Conversely, on a macro perspective, the global energy industry is looking at nuclear power, which is the safest, clean and affordable form of energy. In spite of the Fukushima incident, there have been more nuclear reactors than ever before. A total of 65 new reactors are under construction globally, 165 more are planned and another 331 are proposed for the approval of the government. Consequently, powering all these will require an impressive amount of uranium in the future. The existing nuclear reactors use 174 million pounds of uranium every year, which is increasing with new reactors becoming operational. Simultaneously, the uranium industry due to issues in the near-term is not producing enough uranium required to feed hundreds of new reactors. According to the IEA (International Energy Agency) report, the global cumulative power capacity will increase by around 2000 GW (during the 2012-20) to a total of 7300 GW. The nuclear energy capacity is expected to maintain its share ~6-7% during the above stated period, with capacity additions of 57 GW and a total global capacity of 451 GW. Subsequently, while the atmosphere in near term does not seem much conducive for uranium, the massive number of reactors coming online combined with anticipated supply shortage will drive prices higher for the radioactive material in the long-term. 

Also Read:- Will the supply of zinc drive its future?

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