Uranium sliding into deficit

16.03.2016

By Irina Dorokhova

Uranium spot prices dropped from 39$ to 32$ per pound in a year, seemingly continuing to ignore the fundamental factors influencing supply and demand. The IAEA reports that in 2015 there were 10 reactors launched (8 in China, one in Russia and one in S. Korea) with an aggregate gross capacity of 10.2 GW (see table). Spot prices failed to accommodate the slowdown in production (mines put into maintenance) and the new reactors that started in 2014.

However, these factors will soon be hard to ignore: the 2015 data show that uranium production from primary sources fell about 30% short of the current nuclear power plants uranium requirements.

Demand
3The IAEA website states that there are 442 active reactors in the world today, with an aggregate gross capacity of 384.2 GW. According to the 2014 Red Book published by IAEA and OECD, 437 reactors generating some 371.8 GW required 61,600 mt uranium, suggesting that it takes approximately 165/7 mt uranium to generate 1 GW of electricity. Some experts insist that the average consumption is about 156-160 mt of uranium per 1GW (depending on enrichment). Consequently, 442 active reactors annually need around 61.5 tonnes of yellowcake.

On average, a reactor needs to be shut down for maintenance and reload every 5 years, taking approximately 60 tonnes of fuel (enriched just above 3%) per one 1GW of power. A fresh load of fuel was also required for the 10 reactors launched in 2015. Approximate estimates show that the full reload of 20% of active reactors would require 38,000 mt of uranium oxide. The 10 new reactors required 610 tons of fuel, or some 5.2 Kt yellowcake. Thus, uranium demand for the active reactors must have increased to 91,2 kt of yellowcake in 2015.

Reactor Start-ups in 2015

Name Type Location Reference Unit Power (MW) Gross Electrical Capacity (MW) First Grid Connection
1 SHIN-WOLSONG-2 PWR Gyeongju-si, 993 1045 2015-02-26
2 CHANGJIANG-1 PWR Changjiang 610 650 2015-11-07
3 FANGCHENGGANG-1 PWR Fangchenggang 1000 1080 2015-10-25
4 FANGJIASHAN-2 PWR Jiaxing 1000 1080 2015-01-12
5 FUQING-2 PWR Fuqing 1000 1080 2015-08-06
6 HONGYANHE-3 PWR Dalian 1000 1119 2015-03-23
7 NINGDE-3 PWR Ningde 1018 1080 2015-03-21
8 YANGJIANG-2 PWR Yangjiang 1000 1080 2015-03-10
9 YANGJIANG-3 PWR Yangjiang 1000 1080 2015-10-18
10 BELOYARSK-4 FBR ZARECHNYY 789 864 2015-12-10
Total: 9410 10158

Source: IAIE

Production

1While complaining their disappointment over the excess supply, most companies that sell their production under term contracts have in fact increased their output. For instance, Cameco raised production from 23.3 to 28.4 Mlb uranium oxide (from 10,570 to 12,900 tonnes), and Areva, in the first three quarters of 2015 produced 7,560 tonnes as opposed to 5,620 tonnes in 2014. Rio Tinto increased production from 4.1 to 4.9 Mlb in 2015 (from 1,854 to 2,268 tonnes).

The spot market operators, on the other hand, decreased production. An exception is Kazatomprom, which while operating on the contract market decreased production by 1.2% to 13,000 tonnes. Even at the current volume Kazatomprom remains the world’s leading producer. Paladin Energy had planned to produce 5.4-5.8 Mlb, later adjusted its production expectations to 5.0-5.2 Mlb uranium oxide, and eventually produced 5.04 Mlb (2,286 tonnes).

Uranium production in 2015

Company Production, mt Notes
Kazatomprom 13,000 Company’s information
Cameco 12,900 Company’s information
Areva Circa 10,000 9 months’ production figures extrapolated for the rest of year
Uranium One 5,652 Company’s information
BHP Billiton (Olympic Dam) 3,750 Company’s information
Navoi Mining and Metallurgy Combinat (Uzbekistan) Circa 3,500 Extrapolation of data from 2014 allowing for the changes ( in percentage) in the production (according to the company)
ARMZ Uranium Holding Circa 3,000 Extrapolation of the data from last three years, taking into account production information
Rio Tinto 2,268 Company’s information
Paladin Energy 2,268 Company’s information
Other producers Circa 3,600 According to the Red Book-2014
Total: 59,938

 

Comparing the total reactor requirements and production (91,200 vs. almost 60,000 mt) leads to a paradoxical conclusion that the uranium market should be experiencing a sharp deficit of about a third of fuel requirements.

Even the secondary source supply does not close the gap: the 2015 U Cost study by UxC estimates it as a “huge factor” at about 40 Mlb or 18,100 tonnes.

According to the WNA, a formal supply deficit in the market first appeared back in 2014 with the report of 56,252 mt of uranium mined worldwide (http://www.world-nuclear.org/information-library/facts-and-figures/uranium-production-figures.aspx), while the WNA estimated the reactor requirements at 65,908 mt uranium (http://www.world-nuclear.org/information-library/facts-and-figures/world-nuclear-power-reactors-archive/reactor-archive-january-2015.aspx). The WNA report included Japan, which launched the first reactor since Fukushima (2011) in 2015, but all this time continued to fulfil its previous contractual obligations for uranium purchases. However, even the removal of the Japanese 2,119 tonnes required for her reactors, the production remains below consumption.

There is another way to check the figures. We could account for the nine new reactors with a gross capacity of 9,400MW commissioned in 2013 and 2014 and add their requirements to the IAEA figures. The resulting 64,700 mt uranium requirement is still much higher than the stated 2014 production.

Another evidence of the incipient (or existing) deficit is that uranium producers supply more than they produce. Cameco reports production of 12,900 mt and sales of 14,700 mt uranium. Paladin Energy produced slightly more than its sales (by 0.33 Mlb, or around 150 mt yellowcake). The sales are growing, too: Areva, in its 2015 report, reports a sales increase of 3.9% over 2014. New supply contracts are being signed as well. For instance, in 2015 India signed deals with Cameco (3.22 Kt yellowcake) and Kazatomprom (5 Kt yellowcake). Kazakhstan has also agreed to supply China with uranium. Likewise, Kazatomprom and Centrus Energy Corp have also signed a memorandum of understanding.

The existing uranium stockpiles also affect the supply side. “I need 100 grams of oatmeal a day, but as I had bought half a tonne two years ago, I’m eating it myself and feed the neighbours, too” – describes the market situation a participant. According to some estimates, the stockpiles stand at approximately 3,000 mt U3O8. Granted, the number of reactors and their reload cycles alone would not be sufficient to generate reliable estimates – one would also need the countries’ uranium export-import data for the last 5 years or so (to make proper adjustments in the post-Fukushima world). Finally, one would also need reliable estimates on the yellowcake and fuel stockpiles held by the reactor operators. Such estimate would be outside the scope of this piece.

Whatever the existing stockpiles, the current state of affairs suggests they are on the decrease for both the suppliers and the buyers. (e.g., China, India, USA).

Hence, arises thee question: are there new mines being developed that would meet the new demand? Answering this question is a pressing matter: the Chinese reactor fleet build-up program will be completed in a few years, and there are no new projects comparable in scale anywhere else in the world. The Russian and Indian programs are much smaller in size and are more stretched in time while Japan is increasingly disregarded as a significant player.

In its 2015 press release, Uranium Ore notes that Canada, Africa, Australia and Kazakhstan are four dominant centres of uranium mining in the world. The important question is, which of these countries could develop new mines even in the current soft market. We refer this question to countries, not companies, since the producers consider not only the cash costs but the ease of doing business and establishing working relationships with the local governments. Each country has its own risks – in Canada and Australia it’s the permitting and resistance by local communities, in Kazakhstan and African countries it’s a lengthy bureaucratic procedures and risks of losing control of the projects. This problem, for instance, is noted in the annual Cameco press release:

“The block 3 test leach facility is now operational and state commissioning of the test wellfields was accomplished during 2015. Our application for an extension of the block 3 evaluation period is still pending final approval from the Ministry of Energy of the Republic of Kazakhstan. Inkai continues work on the final appraisal of the mineral potential of block 3 according to Kazakhstan reporting standards. Although a number of extensions of the license term have been granted by Kazakh regulatory authorities in the past, there is no assurance that a further extension will be granted. Without such extension, there is a risk we could lose our rights to block 3, and a risk that we will not be compensated for the money we invested in Inkai to fund block 3 activities”

https://www.cameco.com/media/news/cameco-reports-fourth-quarter-and-2015-financial-results

A joint venture of Kazatomprom, Areva and Uranium One has faced similar problems: lack of information and, more importantly, no guarantees of acquiring licenses where the JV had already conducted exploration.

Another good example comes from Rio Tinto – despite having an office in Kazakhstan for nearly15 years, the company has not made a single public announcement concerning uranium projects.   Meanwhile, the company, which in the past was engaged in uranium only in Africa and Australia, has now begun developing its Roughrider project in Canada. At the end of 2015 “The Group completed an Order of Magnitude study for the Roughrider project in late 2015, which provided an updated view of the development concept and geological model for this uranium project” the company notes in the annual report.

Rio Tinto’s example seems to suggest that the companies are seeking not only low production costs but a political certainty, too.

Creation of competitive business environment remains the key priority to ensure further suitable development of the Uranium Mining in Kazakhstan. At the MINEX Central Asia Forum organised on 19-21 April in Astana, national and international uranium mining companies will meet to discuss mutually acceptable conditions, prospects and guarantees for cooperation. The importance of balancing interests of the state and the international partners is becoming an urgent issue on the back on the report presented by Kazatomprom to President Nazarbaev calling for strict measures including possible returning to the state the assets of JVs who do not fulfil their obligations.

By Irina Dorokhova