Uranium is gaining momentum as China, the world's largest energy consumer, recommits to the development of nuclear power to support its transition to a lower-emission economy a decade after the 2011 Fukushima nuclear accident in Japan.

As Beijing's support for the sector hit multiyear highs, energy experts see nuclear power's contribution to the country's energy mix, which stands at 5%, expanding in line with China's climate goal of reducing carbon emissions per unit of GDP by 18% through 2025 and achieving net-zero emissions by 2060.

Immediately after the Fukushima accident, the Chinese government froze the nuclear power program in order to conduct safety checks on all operating plants and it has since halted approvals for new plants several times due to safety concerns.

During this year's annual parliamentary meetings, or Two Sessions, Chinese Premier Li Keqiang said China would "actively" keep developing nuclear energy "in a safe and orderly manner" after the country failed to meet its target nuclear capacity of 58 GW set for the past five years.

Operating capacity in 2020 only reached 51 GW from 49 operational nuclear power plants.

The country's 14th five-year plan, released after the Two Sessions, set a target for 70 GW of nuclear power capacity by 2025. According to a report from China Nuclear Energy Association, the nation's nuclear power capacity is expected to reach 200 GW by 2035, with six to eight new plants being approved every year from 2021 to 2025.

Berlin-based Energy Brainpool's Simon Goess said that the 14th five-year plan unveiled high-level support for the Chinese nuclear industry and the expansion of nuclear power plants, noting that nuclear capacity was the only expansion target explicitly outlined.

Lin Boqiang, a professor and dean at the China Institute for Energy Policy Studies in Xiamen University, said in an interview that the government's commitment to the expansion of nuclear capacity is based on recent technological breakthroughs in nuclear safety, including the homegrown third-generation reactor design known as Hualong One.

Hualong One was developed by two of the country's three nuclear power operators — China National Nuclear Corp., or CNNC, and China General Nuclear Power Corp., or CGN — making China the fourth country to domestically develop third-generation nuclear power technology after the U.S., France and Russia.

Last year, the first Hualong One reactor was connected to the grid at CNNC's Fuqing nuclear power plant in Fujian province.

Lin expects a greater share of nuclear power in the country's energy mix will address concerns related to grid stability given China's growing reliance on solar and wind power.

Uranium demand looks promising as China seeks long-term supply security amid ongoing deficit

JSC National Atomic Co. Kazatomprom, the leading producer of uranium globally, forecast China will be the world's largest uranium consumer "by a significant margin," CEO Galymzhan Pirmatov said on a March 16 earnings call.

"Some of the comments coming from China around discussions to build strategic stockpiles of uranium, is something I think some of the market participants are missing," Pirmatov said. "So today, long-term security of supply is undoubtedly a focus for the Chinese new-build program. And the large inventory they have built over the past decade is an absolute necessity."

The global uranium market was in deficit last year due to mine suspensions and reduced operational activities following the COVID-19 outbreak. Analysts expect the deficit to remain until at least 2022 and provide upward momentum for the uranium spot price.

Mark Po, an analyst with China Galaxy International Securities, expects new approvals for nuclear power plants to drive demand growth for uranium, and supply will depend on the spot and long-term contract prices for the fuel. "Once the demand and prices for uranium recover, those high-cost mines suspended previously may return back to the market," Po said.

On the supply side, S&P Global Market Intelligence data showed that estimated global production of uranium oxide, or U3O8, was in steady decline from 2016 to 2020. Market Intelligence's Metals and Mining research team noted that the supply disruption last year led to the biggest price movement for spot uranium in five years. The U3O8 spot price hit its highest in four years in 2020.

A senior manager with a Chinese uranium company, who requested anonymity, told Market Intelligence that Chinese nuclear power operators plan on increasing the share of self-owned resources in their supply structure in the next few years as almost all of China's uranium used for commercial purposes is imported. "Buying assets is the most cost-effective way to ensure a secure long-term supply. We are actively looking for good assets globally."

"We are very optimistic about the long-term demand," the senior manager said, noting that the projected capacity of nuclear power plants under construction in China is currently the world's largest. "Transactions in the spot market are more vibrant than long-term contracts now, but there exists a risk for nuclear power operators."

The increasing global presence of Chinese companies in accessing uranium assets shows the importance of securing a steady supply of the fuel. The coronavirus pandemic has also highlighted uranium supply issues and market fragility outside of the immediate term, according to Market Intelligence associate research analyst Katherine Matthews.

CGN's raw uranium sourcing arm CGN Mining Company Ltd. has been operating joint ventures with Kazatomprom in Kazakhstan, the world's top uranium producing country, to access assets such as the Semizbai, Irkol, Mynkuduk and Zhalpak uranium mines by leveraging investments through China's Belt and Road Initiative. Kazakhstan's mines are the most cost-effective operations in the world, according to an analysis by Market Intelligence's Metals and Mining research team.

Matthews said Chinese companies also own stakes in and operate a few assets in Namibia, the world's second-largest uranium producer in 2020. CNNC owns a controlling stake in the Rossing mine and a 25% stake in Langer Heinrich mine. The Husab mine, one of the biggest uranium mines in the world, is controlled by CGN.

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