Uranium—a key commodity for the energy sector—may be emerging from a long price dormancy. It’s impact on many post-Soviet states, especially the politically evolving Kazakhstan, could be immense. Four of the top 10 producers of Uranium are post-Soviet states: Kazakhstan (1), Russia (5), Ukraine (10), and Uzbekistan (7). All of those countries are also in the top 11 for reserves.
Of the world’s largest uranium companies, Kazakh behemoth Kazatomprom ranks 1st with ~20% of global production, Russia’s Rosatom (which owns Uranium One and ARMZ) ranks 3rd with ~14% of global production, and Uzatom ranks 7th with ~4% of global production. Furthermore, five of the ten most productive uranium mines in 2017 are in Kazakhstan.
Demand for uranium is almost entirely driven by the use of nuclear reactors, which themselves are dependent on a) demand for electricity and b) government policy decisions affecting nuclear development. Nuclear power remains a reliable source of electricity that does not emit greenhouse gasses, however, the high cost of new reactors forces the curbing of future emissions to take a backseat to cheap gas or coal-based power plants. Currently, France and the US are responsible for 44% of world demand of the commodity.
According to the World Nuclear Association, there are 447 active reactors worldwide. Furthermore, there are 71 reactors under construction (in 12 countries), 165 planned and 315 proposed. Global base demand for Uranium was reported at 188 million and is expected to grow 6% by 2024.
Uranium prices have been through their most volatile period in history over in the last 15 years, peaking at $136/lb in 2007 and declining to $18/lb in 2016.
In the years leading up to 2007, market sentiment for uranium had been very favorable: the expansion of nuclear power generation in Russia, India, and China, as well as a positive global sentiment towards the potential of nuclear energy created a strong tailwind for the commodity from 2003 to 2006.
During the Uranium bubble of 2007, optimism turned into market euphoria: prices were rapidly driven upwards. Uncertainty in short-term supply paired with changes in the value of the US dollar caused the commodity to appreciate ~4x between early 2006 and mid 2007. It is worth noting that the high $/lb had a muted impact on nuclear power generation, as uranium represents a small percentage of operating costs and most plants purchase long-term contracts.
Prices crashed soon after, exacerbated by the financial crisis and excessive hedge-fund speculation. However, the market eventually plateaued between $40 and $50/lb. Rising demand in China and India was offset by proposed US government inventory sales, and global supply/demand dynamics provided improved price stability. However, the Fukushima disaster in early 2011 catalyzed a string of reactor closures across Japan, the United States, and Germany. As demand weakened, the market became supply heavy as several long-term production projects came online, driving down prices even further until stabilization in 2017.
From July 2018 to December 2018, uranium prices rose by ~30% on the back of increased demand from Asia. As of November 2018, there were 54 nuclear reactors under construction globally, 14 of which are in China. Furthermore, China has announced plans for an additional 43 reactors in the medium-term, and indicated the possibility of 136 long-term reactor projects.
Potential Effect on CIS
The majority of post-Soviet countries that mine uranium do so commercially. Already rich in oil and gas, the rising demand of uranium may further bolster the former Eastern Bloc’s strength in energy production and distribution.
Kazakhstan is responsible for 39% of world production of Uranium through state-owned uranium producer Kazatomprom. Of the 17 Kazakh mines, Kazatomprom is the sole owner of five of them, and the remaining 12 are joint ventures between Kazatomprom and foreign equity holders. In 2011, amidst global pricing pressures, Kazatomprom announced a cap on production at 20,000 tons per year. In January 2017, the company announced that production would be further reduced by 10%, which was then followed by further cuts in December 2017. In 2019, however, production targets were re-raised. Virtually all of its production is exported.
In November 2018, Kazatomprom raised $450M through an IPO. Kazakhstan’s sovereign wealth fund, Samruk Kazyna, sold 15% of the company in November through the London Stock Exchange. The company became the world’s most valuable uranium producer at $3B. The GDRs currently trade at ~$14, at a market cap of $3.64B.
Russia’s fully-state owned corporation RosAtom owns both Uranium One, headquartered in Toronto, and ARMZ, headquartered in Moscow. Combined, those two subsidiaries accounted for 14% of global production in 2017. Both companies owning mining rights all over the world.
Furthermore, Rosatom is working with Kazakhstan and Uzbekistan to help develop and mine each of their natural uranium endowments. So the Kremlin, which has 100% control over Rosatom, is clearly set to benefit from increased Uranium demand. Russia has more access to Uranium than any other country in the world because of its own resources coupled with positive relationships with Nur-Sultan (formerly known as Astana) and Tashkent.
Uzatom, with Rosatom’s help, plans to push Uzbekistan into the “elite club” of peaceful nuclear countries. Uzatom plans to build and launch two reactors by 2028 and 2030 respectively. The decision partially stems from pragmatism. Uzbekistan’s rapidly growing 33 million person population requires energy and Tashkent’s current reliance on traditional energy sources, such as coal and oil, will not be enough to meet the country’s domestic demand. But the country also has greater economic ambitions. Within the next decade, Uzbekistan is also keen to become an exporter of electricity to its neighbors, which will be made possible with the development of its nuclear armada and the vertical integration of Uzatom. All of its nuclear plans fit in with Mirziyoyev’s greater push for Uzbekistan’s economic and geopolitical development.
Ukraine currently has 15 reactors (5th most globally) that generate nearly 50% of its own electricity. An increase in Uranium prices would not, however, allow Kyiv to help sever its ties with Russia, a country that it currently depends on for energy. Its ties cannot be cut entirely, because the majority of Kyiv’s nuclear services are from Russia, though it has finally undercut its reliance on Russian fuel for nuclear energy completely.
Energoatom, Ukraine’s state nuclear company, does not participate in global nuclear energy production the same way Kazatomprom or Rusatom do. It has been mired in corruption scandals for much of the last decade. Uranium markets success may help Ukraine export Uranium, especially to China, which Kyiv has increasingly good relations with in the wake of BRI, and develop partnerships with Kazatomprom and Cameco, but beyond that, any price appreciation will have limited effect on the country.
Ukraine’s real significance in nuclear energy will be to serve as a bridge between the EU and Eurasia. If uranium, and nuclear specifically, becomes a more mainstream way of producing energy, then Ukraine will benefit as a transport hub.
Non-US producers have benefitted from recent dollar appreciation, as operating costs are primarily in local currency. This has allowed mines to cut costs in recent pricing downturns.
The uranium market is also highly correlated to oil and natural gas price fluctuations. While lower fuel costs imply greater savings for uranium producers, it may also lead to the cancellation of high-cost reactor projects in favor of fossil-fuel based power plants, and even prove the driving force behind premature reactor shutdowns.
For the seven years following Fukushima, Uranium was the worst-performing commodity. Despite nuclear cuts from France and Germany, new investment into nuclear from China and India may signal the turning of the tides.