Skip to main content
investing in mining

‘Long night’ after 2011 Fukushima nuclear disaster may nearly be over as some experts see demand picking up

Open this photo in gallery:

Steam rises from the cooling towers of the Electricite de France (EDF) nuclear power station at Nogent-Sur-Seine, France. In November, the French government announced it will delay by up to a decade an earlier plan to phase out nuclear, which provides up to 75 per cent of France’s electric power.CHARLES PLATIAU

After years of hoping and waiting, things may be finally looking up for the world’s uranium mining sector.

“The outlook for the uranium market has, without a doubt, significantly improved over the past year,” says the Bank of Nova Scotia’s report on energy released in mid-January. It’s not a perfect picture yet, but the balance between supply and demand appears to be moving gradually toward more stability than in the past decade.

“While we anticipate the market to be in modest deficit over the next few years [there will be more demand than supply], we only forecast a more or less balanced market in the medium term once the current curtailments reverse.”

In plain speaking, the problem has been one of oversupply, which was triggered by the Fukushima nuclear disaster in Japan nearly a decade ago.

“There was a significant backlash and a lot of negative public sentiment after that accident,” says Bryndon Kydd, partner and natural resources leader with BDO Canada in Vancouver.

On March 11, 2011, after an earthquake and a tsunami, the Fukushima Daiichi nuclear power plant suffered three meltdowns, hydrogen explosions and the release of radioactive material into the air.

Demand for uranium has fallen more or less since then. In the wake of the accident, some countries such as Germany halted their nuclear-power programs and others have taken a go-slow approach to building new nuclear facilities.

In 2007, the spot price for U308 (uranium) was US$136 a pound. By early last year it sank to around US$21, but since then the price has increased by about 40 per cent to about US$28 in late January. BMO Capital Markets predicts a gradual increase in the uranium price to US$55 by 2023, as supplies stay pinched, demand rises and long-term contracts are made.

Experts see the big picture continuing to change for the better, with long-term contracts for uranium coming up for renewal and at least some new projects moving forward. Supply has also been reined in by the “current curtailments” that Scotiabank speaks of – shutdowns by major producers.

These curtailments include Cameco’s McArthur River mine in northern Saskatchewan, which in 2012 was the world’s largest producing uranium mine, contributing 13 per cent globally. (Canada as a whole produces 15 per cent of the world’s uranium.)

The McArthur River shutdown, announced in 2017, was supposed to end last year, but in July, Cameco announced it would continue indefinitely. This could potentially lead to more interest in junior producers, as demand for uranium begins to pick up.

Another key producer, Kazakhstan’s Kazatomprom, announced plans in late 2017 to cut its uranium production by 20 per cent for three years beginning in January of 2018, also seeking to better align output with demand.

In a research note late last year, BMO Capital Markets said the production cuts by Cameco and other top uranium miners will break the trend of global uranium inventories that have been rising since Fukushima. For awhile, it could even lead to a production deficit, the first in a decade.

“The net result is that uranium has entered a period of structural undersupply and we forecast the beginnings of inventory drawdown, which should continue to provide upward bias to the uranium price as we exit the year,” the BMO note said.

Still, the outlook is hard to predict in the notoriously complicated uranium market.

“Inventories can be divided into two broad categories – strategic and excess inventories, with the definition of each somewhat subjective,” BMO’s research said.

“If utilities begin to worry about the security of future supplies, then excess inventories can quickly be reclassified as strategic, leading to a shift in purchasing strategies. This tipping point is hard to predict, but could occur soon given the rapid decline in uranium output and the difficulty of securing future offtake agreements at current prices.”

Though a long night for uranium producers may be nearly over, there have been many disappointments in the sector since Fukushima. The consensus is that a tipping point will likely arrive when utilities, submarine fleets and medical users of uranium need to consider new long-term contracts to renew supplies.

The recovery in uranium is also partly in response to the need by countries to meet their international obligations to combat climate change by curbing carbon emissions.

“Demand growth will be driven primarily by reactor builds in China and India,” says RBC Capital Markets’ Global Metals and Mining Outlook for Q1 2019. China has 42 operating nuclear reactors, 16 under construction and another 43 planned.

RBC warns though, that, “developed countries [will] likely hold steady – note [the] recent decision by France to push back phase-out plans.” In November, the French government announced it will delay by up to a decade an earlier plan to phase out nuclear, which provides up to 75 per cent of France’s electric power.

Market watchers are looking to smaller producers to ramp up activity as demand rises and Cameco and Kazatomprom remain closed or with reduced production. The Minerals Council of Australia released a report last fall calling for relaxing rules in that country to spur exploration, development and production, and in North America, two producers, Energy Fuels (TSX: EFR) and Ur-Energy (TSX: URE) asked the U.S. Department of Commerce to require that 25 per cent of domestic uranium demand be supplied from U.S. mine production.

It’s still early to expect how fast an uptick in uranium will affect the job market, says Carl Kaufman, senior manager and recruiter at Hays mining, resources, energy and renewables division in Calgary.

“We’re hearing and reading about price increases and strategic moves in the space, which have stoked positive sentiment, however, we’ve yet to see appreciable employment gains. I would have to say there could be light at the end of the tunnel but practically speaking, it could be some time before we see anything that resembles recovery,” Mr. Kaufman says.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe