Uranium industry slumps, nuclear power dead in the water

Those dynamics have put downward pressure on prices. After six years of steady decline, uranium prices were flat in 2017. The spot price as of 1 December 2017 was less than one-third of the pre-Fukushima price and the long-term contract price less than half the pre-Fukushima price.

Source: Cameco

Countless would-be uranium mining companies have given up, some trying their luck in other areas such as property development or growing dope. Some mines have closed, others have been put into care-and-maintenance, and others have reduced output. But supply has continued to exceed demand ‒ and to exert downward pressure on prices.

Very few mines could operate at a profit at current prices. Some mines are profitable because earlier contracts stipulated higher prices, while many mines are operating at a loss. Many companies have been loathe to close operating mines, or to put them into care-and-maintenance, even if the only other option is operating at a loss. They have been playing chicken, hoping that other companies and mines will fold first and that the resultant loss of production will drive up prices. "We have to recognise that we over-produce, and we are responsible for this fall in the price," said Areva executive Jacques Peythieu in April 2017.

Current prices would need to more than double to encourage new mines ‒ a long-term contract price of about US$70–$80 is typically cited as being required to encourage the development of new mines.

The patterns outlined above were repeated in 2017. It was another miserable year for the uranium industry. A great year for those of us living in uranium producing countries who don't want to see new mines open and who look forward to the closure of existing mines. And a great year for the nuclear power industry ‒ in the narrow sense that the plentiful availability of cheap uranium allows the industry to focus on other problems.

Cut-backs announced

The patterns that have prevailed over the past five years or so might be changed by decisions taken by Cameco and Kazatomprom (Kazakhstan) in late 2017 to significantly reduce production. Canada closed McArthur River in Canada in January and plans to keep it closed for around 10 months ‒ it had been producing more uranium than any other mine in the world. Kazakhstan has been producing almost 40% of world supply in recent years and plans to reduce production by 20% from 2018‒2020.

Previous cut-backs in Canada and Kazakhstan have had little or no effect, and so far the late-2017 announcements have only resulted in a small, short-lived upswing in uranium prices. But the cut-backs are significant and their impact might yet be felt.

A late-2017 report by Cantor Fitzgerald equity research argued that the decisions by Cameco and Kazatomprom could result in a "step change" for uranium prices. But Warwick Grigor from Far East Capital was downbeat about Cameco's announcement. "I don't see this as a turnaround for the uranium price; at best they will stay where they are, but it doesn't signal a boom in price," he said in November 2017.

BHP marketing vice-president Vicky Binns said in December 2017 that uranium markets would remain oversupplied for close to a decade, with downward pressure remaining on uranium prices despite Cameco's production cuts. She said that demand for uranium could outstrip supply by the late 2020s but that could change if developed nations close their nuclear reactors earlier than expected, or if renewables take a larger than expected market share.

Equally downbeat comments have been made by other industry insiders and analysts in recent years. Former Paladin Energy chief executive John Borshoff said in 2013 that the uranium industry "is definitely in crisis" and "is showing all the symptoms of a mid-term paralysis". Former World Nuclear Association executive Steve Kidd in May 2014 predicted "a long period of relatively low prices". Nick Carter from Ux Consulting said in April 2016 that he did not see a supply deficit in the market until "the late 2020s".