Commodity Insights Bulletin - Uranium Q2 - Q3, 2017 | KPMG | GLOBAL

Commodity Insights Bulletin - Uranium Q2, 2017 - Q3, 2017

Commodity Insights Bulletin - Uranium Q2 - Q3, 2017

The uranium spot price remains close to historic lows. The stakes have increased for the industry as this period of sustained low prices drags on.


Commodity Lead, Uranium

KPMG Australia


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The uranium spot price remains close to historic lows. The stakes have increased for the industry as this period of sustained low prices drags on. Key global suppliers have announced significant production cut backs which signals their intent. These curtailment decisions are not taken lightly given their impact on the community but reflect the heightened tension between unsustainable uranium prices and excess supply. This stalemate will only be resolved when the utilities return to long term contracting in significant quantities over the next few years. The contracting will need to be at sustainable prices.

Price outlook

  • In November 2016, prices dropped to a ten year low of US$18/lb, due to substantial inventories and political headwinds that curbed growth of the nuclear power industry in several countries.
  • In Q3 2017, there was marginal movement in prices. During Q3 2017, inventories and secondary markets proved to be more robust than expected, resulting in negative impact on producers and a gradual departure of generalist investors’ funds from the sector. Significant inventories also have resulted in the containment of the overall impact of the first round of production cuts announced in 2017, although the full extent of the production cuts have yet to be felt in the market.
  • Uranium markets remained oversupplied, and hence, the prices are expected to remain low, averaging US$22/lb, in 2017. Significant price growth in the short-term is less likely, due to slower than expected progress in the re-opening of reactors in Japan and better-than-expected holdup of global inventories. Prices are expected to recover to US$29.5/lb in 2018 and US$39.4/lb in 2019, driven by production cutbacks and expected increase in Asian demand.
  • Uranium prices are expected to increase at a compound annual growth rate (CAGR) of 19.4 percent from an estimated value of US$23.9/lb in 2017 to US$48.6/lb in 2021, driven by the impact of production cuts and the expected increase in the pace of reactors coming online. Post 2021, the market is expected to move toward a deficit and there may be a requirement of new mine supply, resulting in expected price levels north of US$50/lb.

Figure 1: Prices of uranium, Q3 2005–Q3 2017

Source: Cameco, Uranium Price, accessed November 2017

Figure 2: Market balance vs. prices, 2015–2021E*

Source: Capital IQ consensus prices; BMO Capital Markets: Global Metals & Mining: Q3 2017 Mining update, 29 June 2017, via Thomson Research, accessed November 2017

*Market balance presents the difference between the world’s primary uranium production and the world’s uranium consumption.

Supply and demand


  • In 2016, global uranium supply increased 3.4 percent y-o-y to about 197.4 million pounds (Mlbs), driven by higher production from Australia, Namibia and Canada. Australian uranium supply increased 25.6 percent y-o-y and reached 15.7Mlbs2a in 2016.
  • In 2017, global uranium production is expected to decrease marginally to 197.2Mlbs. A decline in production is expected owing to the 7.1 percent y-o-y decline in Kazakhstan, offset by y-o-y increase2a in production from Namibia, Australia (5.1 percent) and Russia (1.3 percent). In Namibia, developments at the Husab mine and Rio Tinto’s Rössing mine are expected to be the major contributors for y-o-y production improvements in 2017. However, supply disruptions in 2017 are expected from planned production cuts, which include Kazatomprom. In December 2017, Kazatomprom announced that it will reduce planned uranium production by about 20 percent to better align output with demand — these cuts are expected to be enacted for a period of three years beginning January 2018.
  • Additionally, Cameco had placed its Rabbit Lake and US In-situ Leach (ISL) mining operations on care and maintenance and will suspend production for 10 months at its McArthur River mine (11 percent of global supply in 2016), starting from January 2018. In 2017, Rio Tinto announced a potential closure of the Ranger mine in 2021, removing 4.3Mlbs from global supplies. However, there may be an additional supply of 15mlbs through continuous development over a number of years of the Husab mine project in Namibia.
  • Global uranium supply is increasingly being drawn from uranium inventories held by nuclear utilities and secondary market supplies. In 2017, inventory and secondary supply will likely constitute about 18 percent of the global uranium supply. It has been estimated that there are sufficient inventories held by nuclear utilities to cover forward demand for about five years in Japan, 2.5 years in both the US and Europe and about seven years in China. These include an element of strategic inventories.
  • Long-term global uranium supply is expected to increase at a CAGR of 2.9 percent from 197.2Mlbs in 2017 to 221.3Mlbs in 2021, driven by continued supply discipline and increase in production at the China General Nuclear Power Company (CGNPC)/Swakop Uranium’s Husab mine in Namibia, Peninsula Energy’s Lance mine in the US, and Cameco’s Cigar Lake mine in Canada. However, these increases in production are only expected to occur if the prices support the investment needed, which will not happen in the current price situation. If uranium prices remains at the current low level for longer, further production cuts may occur from producers.

Figure 3: World uranium supply, 2015–2021E

Source: Global Metal and Mining report — BMO Capital Markets, 29 June 2017, sourced via Thomson One, accessed in November 2017.

Note: E stands for Estimate.


  • In 2016, global uranium consumption increased 11.9 percent y-o-y to 192Mlbs, driven by the startup of new reactors in China, Japan, India, Russia and South Korea. In the same year, nine new reactors came up in China, while six reactors became operational in India.
  • In 2017, global uranium demand is expected to increase 2.2 percent y-o-y to 196.3Mlbs, driven by the addition of new nuclear capacity in China, India and Japan and moderate increase in output at the existing reactors in the US. China completed the construction of Unit 4 of its Fuqing nuclear power plant in August 2017 and aims to deliver 1,020 megawatts electric (MWe) of power through its grid connection. As of Q3 2017, China has 20 nuclear plants under the development stage. Chinese uranium demand accounted for 17Mlbs per annum in 2016 and is forecasted to increase to 60Mlbs annually by 2030.
  • In the US, federal legislators are concerned about nuclear closures and the impact on baseload supply and grid stability. Hence, there is an expectation that there could be more attempts to reform dysfunctional market structures, including Zero Emission Credits (ZECs) being made available to nuclear power operators. Additionally, Japan reactor restarts are progressing and it is estimated that there could be a total of nine reactors in the operational stage by mid-2018.
  • In May 2017, India announced final approval of its plan to build 10 additional large pressurized heavy water reactors in the future. These reactors with a combined capacity of more than 7,000MWe are expected to more than double India’s present nuclear capacity of 6,780MWe.
  • However, the global uranium market is witnessing negative sentiment over demand, as nuclear leaders, such as France have decided to reduce their reliance on nuclear power. Germany has been clear in its objective to exit nuclear power generation and South Korea’s newly elected President — Mr. Moon Jae-in, aims at phasing out power generation through nuclear technology by 2060 and has cancelled plans for new units. These policy statements dampen sentiment toward the industry.However, recent delays and cancellations of reactor projects in developed countries will act as a temporary offset against the longer-term rise in use of nuclear power among developing countries.'
  • Long-term global uranium consumption is expected to increase at a CAGR of 4.4 percent from 196.3Mlbs in 2017 to 232.9Mlbs in 2021, driven by expected consumption growth in developing countries, which includes India and China. Additionally, new reactors construction in Russia, Europe and the UAE are expected to supplement the overall long-term demand.
  • The progress in bringing reactors back online in Japan remains slow and the country’s demand for uranium is expected to remain below pre-Fukushima levels through 2021. The following are the recent developments on its nuclear power plants:
    • On 28 September 2017, Hiroshi Nakatsuka, mayor of Ohi in Japan’s Fukui prefecture, gave his consent for the Kansai Electric Power Co. to restart Ohi 3 and 4 of its nuclear power plant.
    • On 28 September 2017, Japan decided to reschedule fuel removal from the Fukushima Daiichi power plant. Fuel removal will be delayed from 2017 to 2018 for reactor 3 and 2020 to 2023 for reactors 1 and 2.
    • In August 2017, the operators of three reactors in Japan — Genkai 3 in Saga prefecture and Ohi 3 and 4 in Fukui prefecture, asked for pre-operation inspections from Japan’s Nuclear Regulation Authority (NRA) to confirm the reactors’ compliance with new regulatory requirements before they are restarted.
    • In June 2017, Japan's Kansai Electric Power Co.’s Takahama 3 and 4 resumed their commercial operations.

Figure 4: World uranium consumption*, 2015–2021E

Source: Global Metal and Mining report — BMO Capital Markets, 29 June 2017, sourced via Thomson One, accessed in November 2017.

* Note: E stands for Estimate.

Figure 5: World nuclear reactors (under construction, planned and proposed), October 2013–September 2017

Source: World Nuclear Org., World Nuclear Power Reactors & Uranium Requirements, September 2017, World Nuclear Power Reactors & Uranium Requirements, accessed November 2017.

The number of proposed nuclear reactors increased marginally to 351 in September 2017, compared to 350 in March 2017. However, the number of planned reactors decreased to 160 from 164 during the same period. The number of under-construction nuclear reactors decreased to 56 in September 2017, from 59 in March 2017.

Key developments

Ownership changes

The total value of uranium deals increased from US$17.8 million in Q2 2017 to US$123.1 million in Q3 2017. The total number of deals remained flat at three, both in Q2 2017 and Q3 2017. Hence the average deal value4a increased from US$5.9 million in Q2 2017 to US$41.1 million in Q3 2017.

On 31 August 2017, the Omani state-owned State General Reserve Fund, agreed to a funding package in Berkeley Energia Ltd. — a Perth-based uranium, radium and vanadium ore mine operator, for US$120 million. The funding package will be used for the capital costs of the Salamanca mine. Securing this investment is a significant achievement at a low point in the uranium cycle.

Figure 6: M&A deal number and valuations, Q3 2014–Q3 2017*

Source: MergerMarket and Thomson One accessed November 2017

*Deals with undisclosed value have also been considered


Price outlook: Resources and Energy Quarterly, Bureau of Resources & Energy Economics (BREE), Australian Government, June quarter 2017, September quarter 2017; Uranium: Why It Can Rally Back to US$70, 29 June 2017, Barrons website, accessed in November 2017; Marginal Cost: Definition, Equation & Formula, Marginal Cost: Definition, Equation & Formula, Study website, accessed in November 2017.

*Inventories and secondary supply includes uranium supply from commercial inventories, reprocessing of spent fuel, sales by uranium enrichers and inventories held by governments, in particular the US Department of Energy.
**Marginal cost is the increase or decrease in total production cost if output is increased by one more unit. If the price of one unit is greater than the marginal cost of producing that additional unit, then one should produce that unit.

Supply: Resources and Energy Quarterly, Bureau of Resources & Energy Economics (BREE), Australian Government, June quarter 2017, September quarter 2017; Global Metal and Mining Weekly -- Credit Suisse, 13 November 2017; Uranium Weekly -- TD Securities Inc., 31 October 2017; Uranium Weekly -- TD Securities Inc., 18 October 2017; Uranium Weekly -- TD Securities Inc., 19 September 2017; Ringler Research - Uranium sector newsletter, 27 August 2017; Canada Research - Base Metals and Minerals, 27 August 2017; sourced via Thomson One, accessed in November 2017,
Chinese-invested uranium mine in Namibia sets production goal, 27 January 2017, Xinhuanet website, accessed in November 2017; Husab to reach full capacity by August 2018, 16 February 2017, Namibian website, accessed in December 2017.
*The increase was calculated by subtracting the 2015 supply data from 2016 supply data sourced from BMO Capital Markets report.

Demand: Resources and Energy Quarterly, Bureau of Resources & Energy Economics (BREE), Australian Government, June quarter 2017, September quarter 2017; News: Japan nuclear update, Japan Nuclear Update, Nuclear Energy Institute website, accessed November 2017; Govt clears 10 new nuclear reactors in big power push, Govt clears 10 new nuclear reactors in big power push, 18 May 2017, The Indian Express website, accessed in November 2017

Ownership changes: MergerMarket and Thomson One, accessed November 2017
*Average deal value is the total value of deals divided by total number of deals for a particular quarter

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