The nuclear industry is gradually recovering from its post-Fukushima slump, but excess capacity keeps uranium prices at record lows, forcing mining companies to mothball mines, slice costs and cut debt as they struggle to survive.
Several other countries including Germany announced plans to exit nuclear, and in the past three years severalnuclear reactors in the US were closed as they could no longer compete with cheap shale gas.
The World Nuclear Association (WNA) says it is feasible that global nuclear electricity production, at around 2 441 terawatt hours (TWh) in 2015, may return to 2011 levels this year and to pre-Fukushima levels in two-three years. In 2010, the last full year before Fukushima, nuclear generation came to 2 630 TWh.
Long-term perspectives have picked up too.
China plans to build at least 60 nuclear plants in the coming decade and Thursday’s signature of the Hinkley Point contract between French utility EDF and the UK government opens the way for up to 12 new reactors in Britain.
Uranium, which before the 2008 financial crisis had briefly peaked around $140/lb in June 2007, traded around $70/lb just before the Fukushima disaster and has been on a downward trend ever since.
Mining executives partly blame the slump on their customers’ wait-and-see attitude, as utilities believe that the uranium market’s over-capacity will persist for years and see no need to rebuild their dwindling stockpiles.
Demand for uranium is determined by the number of nuclear plants in operation worldwide, but supply and demand are disjointed by huge stocks and uranium’s long production cycle.
Uranium however has to be mined, converted, enriched and turned into fuel rods in an 18 to 24 month process. And as security of supply is so important and uranium makes up just a few percentage points of the cost of runningnuclear reactor, utilities tend to have five to seven years’ worth of inventory.
“At the moment, nobody feels the need to buy and the price is lower every day. We are still waiting for the inflexion point,” Molyneux said.
In the five years before Fukushima, utilities worldwide bought about 200-million pounds of uranium a year, he said. Although Japan‘s consumption averaged only around 25-million pounds a year, when it closed its reactors demand was cut far further, falling by half. European and US utilities saw that the market was over-supplied and reduced inventories, buying less.
Mining firm Energy Fuels estimates global uranium stocks held by utilities, miners and governments are now at around one-billion pounds. That is down from a peak around 2.5-billion pounds in 1990, but still many years’ worth of consumption.
Despite the plunge in uranium prices after the 2008 financial crisis and again after Fukushima, uranium production has doubled from 80-million to 90-million pounds in the mid-1990s to about 160-million pounds last year, according to Energy Fuels data.
Most of that new supply came from Kazakhstan, which over the past decade has more than quintupled its output to become the world’s leading source of uranium with a 38% market share in 2013, WNA data show.
With so much new supply, and demand sliding, prices have fallen to a level where most uranium miners operate at a loss.
He added that many legacy long-term supply contracts will expire in 2017/18, which will force many mines to close or throttle back even further than they already have.
Paladin – the world’s second-largest independent pure-play uranium miner after Cameco and the seventh or eighth-largest globally – has production capacity of eight-million pounds of yellowcake uranium but produced just 4.9-million pounds last year at its Langer Heinrich mine in Namibia.
Molyneux said the firm will produce about four-million pounds this year and will cut output further to about 3.5-million pounds next year if prices do not recover.
Meanwhile it is trying to further reduce its debt, which already fell from $1.2-billion five years ago to $362-million.
Bigger peer Cameco in April suspended production at its Rabbit Lake, Canada mine while also curtailing output across its US operations, saying market conditions could not support the operating and capital costs needed to sustain production.
Cameco marketing head Tim Gabruch told the WNA conference that “desperate times call for desperate measures”.
Supply adjustments and producer discipline had not yet been sufficient to counter the loss of demand, he said.
“As difficult as those decisions have been, we recognise that those actions may not be enough.”