Six Factors Driving Increased Uranium Demand

Apr. 23, 2020

Six Factors Driving Increased Uranium Demand
While uranium prices plummeted from a peak of $137/lb. during 2007 to around $20/lb. in November 2016, that alone is not enough to call a market bottom. However, a substantial increase in demand appears to support the case that uranium prices have bottomed and may be posed to advance.

As Goes Nuclear Power
One of the primary uses for uranium is in the generation of nuclear energy. Generation of nuclear energy has expanded for six consecutive years, rising from 2,346 terawatt-hours (TWh) in 2012 to 2,563 TWh during 2018 – an increase of 9%, according to the World Nuclear Association (WNA).[1]

Growth in Demand Expected to Continue
According to the WNA, 449 nuclear reactors were operating globally at the end of 2018. There were also 55 reactors under construction, 111 reactors planned, and 349 reactors proposed, highlighting further potential growth.

Nuclear’s Share Expected to Grow
Currently, nuclear energy represents 11% of the world’s electricity supply. According to the WNA report, 20 new reactors are scheduled to be completed before the end of 2020. Additionally, the WNA’s Harmony Programme has a goal of nuclear achieving a 25% share of electricity generation by 2050. To meet that goal, many more nuclear reactors would need to be built.

Rising Demand and Contracting Supply Has Led to a Supply Deficit
Our team performed a comprehensive analysis on the supply and demand of uranium across the globe. Based on our estimates, uranium supply totals 170MM lbs. However, demand seems to be closer to 200MM lbs. Our estimate was based on an analysis of all current and prospective uranium mines, as well as all operating, under construction, and proposed nuclear reactors in the world. We believe current production is not enough to supply existing demand, let alone the potential future growth. The supply deficit has been filled by a reduction in inventories.

Inventories Declining
Currently, nuclear power operators hold less than three year’s worth of uranium inventory.[2] It generally takes 24 months to extract uranium from the ground and convert it into fuel for nuclear plants. Thus, nuclear power producers need to start seriously thinking about sourcing inventory for future needs.

Long-Term Contract Expirations
In order to ensure a steady supply of uranium, nuclear energy operators typically enter into long-term supply contracts. These contracts generally run for ten years. By 2020, approximately 40% of utilities uranium needs will be uncovered by long-term contracts. That percentage is expected to rise to 75% by 2025.[3]

Summary
The expected rise in demand for uranium accompanied by shrinking supply, declining inventories, and expiration of long-term contracts highlight our bullish case for uranium.

How may investors gain exposure to uranium in their portfolios?

The North Shore Global Uranium Mining ETF (URNM) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the North Shore Global Uranium Mining Index (the index).

By seeking to replicate the index, URNM looks to provide investors with access to both miners and holders of uranium.


[1] World Nuclear Performance Report 2019, World Nuclear Association, August 2019
[2] Littlewood, Nigel & Lee, Jackson, The Perfect Storm? Harness Asset Management, May 2018
[3] Major, Daniel, Uranium Collapse Signals 2020 Positive Supply Shock: GoviEx CEO, Mining.com, 1/15/16

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Commodity prices may be influenced or characterized by unpredictable factors, including high volatility, changes in supply and demand relationships, weather, agriculture, trade, changes in interest rates and monetary and other governmental policies, action and inaction. Uranium Companies may be significantly subject to the effects of competitive pressures in the uranium business and the price of uranium. The price of uranium may be affected by changes in inflation rates, interest rates, monetary policy, economic conditions and political stability. The price of uranium may fluctuate substantially over short periods of time, therefore, the Fund’s share price may be more volatile than other types of investments. In addition, they may also be significantly affected by import controls, worldwide competition, liability for environmental damage, depletion of resources, mandated expenditures for safety and pollution control devices, political and economic conditions in uranium producing and consuming countries, and uranium production levels and costs of production. Demand for nuclear energy may face considerable risk as a result of, among other risks, incidents and accidents, breaches of security, ill-intentioned acts of terrorism, air crashes, natural disasters, equipment malfunctions or mishandling in storage, handling, transportation, treatment or conditioning of substances and nuclear materials.