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Uranium spot prices and shares of uranium mining companies have plunged in recent weeks amid fears that the situation in Japan could deteriorate into a nuclear meltdown on par with Chernobyl.
Investors fear that the explosion and subsequent radiation leaks at the Fukushima nuclear power plant will force other countries to tighten restrictions, or worse, abandon their pursuit of nuclear power as an alternative source of energy.
Then uranium prices would bounce back from their current level around $60 a pound to their pre-Japan crisis highs of $73 a pound. And that would just be the beginning, as higher oil prices, concerns over carbon emissions, and soaring demand for nuclear energy could drive uranium prices back up to $90, or even $140 a pound as seen in 2007.
That’s precisely the scenario industry insiders have in mind.
Indeed, those closest to the situation do not believe that Japan’s disaster will be the death knell for nuclear power. On the contrary, they see it as a short-term blip that will drive antsy speculators out of the market and make room for investors looking to profit from the energy of the future.
“It’s going to move irregularly up. By around 2013 we’ll be looking for at least $90 US per pound,” Patricia Mohr of Scotiabank Group told the Business News Network. “Mostly because of a doubling of China’s nuclear objectives over the coming decade.”
The price of uranium oxide, the most commonly traded form of the nuclear fuel, plummeted 27% to about $50 a pound in the spot market in the days following Japan’s earthquake and reactor explosion.
But since then, the spot price has rallied some 20% to more than $60 a pound – showing that many investors see uranium’s dip as a buying opportunity.
And why shouldn’t they?
Solar, wind, hydro, and geothermal energy are too underdeveloped to take the energy mantle away from oil and natural gas. So there is still a gaping need for an alternative energy source that doesn’t carry the monetary or environmental cost of fossil fuels. And despite the catastrophe in Japan, many countries plan to expand their nuclear energy programs following a relatively brief review of safety regulations and protocol.
“It’s not like the world’ s major energy issues have been in any way solved by first-hand reminders of the dangers of nuclear power,” Katy Payn, a Sydney, Australia-based political risk manager told Xinhua. “That danger has always been there, this is merely a wake-up call.”
U.S. President Barack Obama just last week said that nuclear power would continue to play a role in U.S. energy policy.
“It’s important to recognize that nuclear energy doesn’t emit carbon dioxide in the atmosphere, so those of us who are concerned about climate change, we’ve got to recognize that nuclear power, if it’s safe, can make a significant contribution to the climate change question,” President Obama said last Wednesday. “We’re going to incorporate those conclusions and lessons from Japan in design and the building of the next generation of plants. But we can’t simply take it off the table.”
And then there’s China.
China is the world’s largest emitter of greenhouse gases. It’s also undergoing a rapid modernization that has seen millions of workers flood its cities in search of factory jobs.
China seeks to employ solar, wind and hydropower to fuel its expansion, but nuclear power remains a priority as well.
As it stands now, China has 13 working reactors with a generating capacity of 10.8 million kilowatts, and 32 reactors capable of producing 30.97 million kilowatts under construction.
The State Council said on March 16 that it would stop approving new nuclear plants “until safety and improved long-term development plans are cleared.” But the country still plans to begin construction on a state-of-the-art nuclear plant this month.
The fourth generation plant will use gas for cooling instead of water.
“There are differences between the Japanese and Chinese reactors,” Cui Shaozhang, deputy general manager at Huaneng Nuclear Power Development Co. told Bloomberg News. “Japan’s Fukushima plant was using old technology while Chinese reactors are more advanced.”
China’s 12th Five-Year Plan targeted 42.9 million kilowatts of nuclear power generation capacity by 2015 and 100 million kilowatts by 2020. Concerns about a potential meltdown forced authorities to back off that target, but not in a major way.
Wei Shaofeng, deputy director of the China Electricity Council, said he believes the central government will reduce its 2020 target by just 10 million kilowatts – if it makes any adjustment all.
Meanwhile, China will be joined by other Asian countries that see nuclear power as a viable substitute for coal-fired power plants.
India, for instance, is sticking to its plan for a 13-fold increase in nuclear energy capacity by 2030.
“You can see rapid growth in nuclear installed capacity in India and China, notwithstanding the events in Fukushima,” said Michael Parker, a Hong Kong-based analyst at Sanford C Bernstein & Co. “The cheapest, most easily scaled, cleanest, and most technologically mature source of electricity for these economies is nuclear.”
The planned increase in atomic power would bring the Asian nations to 30% of the world’s total from the current 4%, according to Sanford C Bernstein & Co.
“Asian nations will be thinking about how to meet electricity demand, which is always rising,” Hiroshi Miyata, chief executive officer of Marubeni Power Development Co., a builder and operator of power stations outside Japan, told Bloomberg. “It may slow construction of nuclear plants, but investments will probably continue.”
A Buying Opportunity
Indeed, the growth prospects for nuclear power remain strong, as do the prospects for its yellow cake fuel.
In fact, uranium demand will grow by 33% in the next decade to correspond with projected growth in nuclear reactor capacity, according to the World Nuclear Association.
“There’s still a strong demand globally for uranium,” Greg Hall, managing director of uranium exploration company Toro Energy Ltd. (PINK: TOEYF), told The Australian. “There’s 440 operating reactors, there’s approximately 60 under construction – even if there’s a freeze for a few months on new builds… that doesn’t mean a massive slowdown in the industry.”
Toro isn’t the only uranium miner unfazed by what’s perceived as a temporary setback in the price of uranium.
Cameco Corp. (NYSE: CCJ), the world’s second largest uranium mining company, is moving ahead with plans to double production to 40 million pounds a year by 2018.
“We see no reason to slow down the doubling of production,” Cameco Chief Executive Officer Jerry Grandley told Reuters. “Even if there is a pause or slowdown (in the nuclear plant buildout) as expected.”
Current global uranium demand is about 180 million pounds a year, while mine output stands at about 140 million pounds, according to Reuters.
“My sense is, given all those pieces, there isn’t going to be much of a change in the supply and demand imbalance that we have, and in the need for new projects to come online in the next decade,” said Grandley.
Still, shares of uranium producers have been hard hit in the wake of Japan’s struggles. Cameco and Uranium Resources Inc. (Nasdaq: URRE) have each plunged some 25% in the past month, while shares of Uranium Energy Corp. (AMEX: UEC), an exploration-stage company, are down 28% in that time.
Many analysts say these declines are a good chance for opportunistic investors to cash in.
“With share prices falling it makes it more difficult to finance mines. But by the same token, so long as the uranium price doesn’t stay down too long, it means there’s great opportunities for investors to buy stocks at these levels and it’s a price that I didn’t think we’d see again,” Warwick Grigor, executive chairman of BGF Equities, told The Australian. “The market has come off 50% since January and for anyone who can think more than one or two months ahead, then I think it’s a great buying opportunity for Australian uranium companies.”
Of course, it’s not just Australian producers that could see a sharp bounce back.
Analysts project an average advance of 82% for the uranium companies in the Global X Uranium ETF (NYSE: URA) that have 12-month price estimates, according to data compiled by Bloomberg.
The Global X Uranium ETF is down 27% in the past four weeks.
“You’re offered fundamental upside if you believe the sell-off in the uranium stocks is overdone,” said Andrew Ross, partner and global equity trader at First New York Securities LLC, told Bloomberg. “The Chinese are taking a very long-term view of their energy needs and they have to incorporate some element of nuclear power into their plans. You just have to overcome the headwinds of the Japanese issues.”
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