Japan gives nuclear industry a reason to cheer
SAN FRANCISCO (MarketWatch) -- Japan's devastating disasters last year derailed some growth in the nuclear industry world-wide, but demand for uranium is poised to strengthen after the nation that fed doubts over safety approved its first restart of nuclear reactors since the catastrophe.
"Stealthily … developments in the nuclear industry are moving ahead," said Jeb Handwerger, a natural-resource analyst and editor of GoldStockTrades.com. "Homage was paid to Fukushima," but it did not deter companies in the nuclear power industry "from continuing the development of nuclear energy."
On March 11, 2011, a magnitude 9.0 earthquake, the most powerful ever recorded in Japan, struck the eastern coast of the nation. Tsunami waves followed, causing a power outage at Japan's Fukushima Daiichi nuclear plant that, in turn, sparked a radiation crisis that was the worst the world had seen since the 1986 Chernobyl nuclear disaster in Ukraine.
And in the months that followed, all 50 of Japan's main nuclear reactors, which provided around 30% of the nation's electricity, were shut down -- the most recent being a reactor at the Tomari nuclear plant in May of this year.
That marked the first time since 1970 that the nation had been without nuclear power.
"The main difference between now and before Fukushima is that the future growth curve for nuclear power (and uranium demand) is much flatter now than it would have been if Fukushima had not happened," said Jonathan Hinze, senior vice president, international, at the Ux Consulting Co., the world's leading nuclear-fuel consultancy.
But, in a sign of progress, the Japanese government recently approved the restart of the two reactors at the Oi nuclear power plant in Fukui prefecture in western Japan. The restart process is expected to be completed by late July.
The "restart of the Japan reactors is likely to be the triggering event to start an upward movement in uranium prices and uranium stocks," said Steve Laflin, president and chief executive officer of
Some estimates pegged the loss in uranium stocks at more than $1.5 billion in value in the week following the Fukushima disaster, said Laflin, whose firm takes depleted uranium and turns it into specialty fluoride gases.
Since then, uranium prices have "largely stabilized and industry commodity experts believe that it has found a solid floor price," he said.
Shadow of a doubt
Many analysts don't believe that the world's nuclear prospects were ever really threatened, though it certainly looked that way.
Had the Oi units not been approved for restart, "that would have cast a big shadow over the world nuclear industry, as well as over Japan's economy," said Ann MacLachlan, European bureau chief of Platts Nuclear Publications, Paris. "So in that sense, it's good news for the nuclear sector."
In the wake of Japan's disaster and the shutdowns of the nation's nuclear reactors for maintenance and safety checks that followed, nuclear energy appeared to be falling out of favor.
Germany announced plans to phase out nuclear power by 2022 and Switzerland said it would phase out nuclear power by 2034, according to the World Nuclear Association.
"The biggest hits in terms of country nuclear power programs were seen in Japan and Germany," said Hinze.
"A few other places also saw significantly reduced prospects for nuclear power usage in the future, including Switzerland, Belgium, Taiwan and Italy," he said. "A few other countries, such as China, reduced their growth targets as additional safety requirements were placed on new construction."
But there's still growth there and elsewhere to offset that.
"There is significant nuclear growth in developing markets" such as China, India, Russia and South Korea -- and even oil-rich nations such as Saudi Arabia and the United Arab Emirates, said Amir Adnani, chief executive officer and president of
The 1993 "Megatons to Megawatts" agreement also expires at the end of 2013 and that will likely cut into supplies, analysts said.
"Were it not for the Russians supplying uranium to the U.S as part of the 'Megatons to Megawatts' arrangement … we would be experiencing major power failures," said Handwerger of GoldStockTrades.com, which offers a newsletter that covers small-cap uranium equities.
"Megatons to Megawatts' refers to commitments by the U.S. and Russia to convert nuclear weapons into fuel for electricity production, according to the WNA.
The amount of Russian high-enriched uranium to be "downblended" or diluted, into reactor-grade nuclear fuel totaled 500 metric tons over a 20-year period, so the quantity of natural uranium equivalent produced from the program is 24 million pounds annually, Ux Consulting's Hinze said.
"Mining supply must expand to make up for this loss," he said.
There are still about 60 reactors currently under construction in about 15 countries, and 400 or so operating reactors plus 50 "definite new" reactors around the world that are unaffected by Fukushima or its fallout, according to Hinze.
These reactors have maintained operation and "will continue to come online in the near term, meaning that there is continued steady demand for uranium now and into the future," he said.
And all of that supports uranium demand and prices, which had suffered a decline of around 26% in less than a six-month span following Fukushima's nuclear meltdown.
The weekly price of uranium stood at $66.50 a pound on March 7, 2011, just ahead of the disaster, and dropped to $49 the week ended Aug. 29, according to data from Ux Consulting Company.
It's been holding above $50 ever since, with prices as of the week ended June 18 at $50.75, data show.
Christopher Ecclestone, a mining strategist at Hallgarten & Co., expects uranium prices to reach $55 by year-end, and trade over $65 by the end of next year.
There's also opportunity in uranium stocks, such as
But "certainly investors have sold off uranium holdings based on the situation in Japan and, on average, uranium equities dropped by about 50%," said Uranium Energy Corp.'s Adnani.
The Global X Uranium exchange-traded fund (URA) has lost more than 60% since mid-March of last year.
There are still 48 reactors that are idled in Japan, despite the planned restart of the two reactors, said Hinze, who estimates that by this time next year, there may only be 10-15 reactors up and running there.
"It will take several years for Japan's nuclear industry to recovery, and given the policy shifts away from nuclear power in Japan, the long-term future for nuclear is not that great in Japan," he said. "It will not be driving a rapid growth in nuclear power."
Instead, it will be key countries, such as China, Russia, South Korea and India, that will influence a growth trend, he said.
As of June 2012, there were around 430 reactors and about 366 gigawatts-electric (GWe) in operation around the world, compared with 441 reactors and 375 GWe in operation at the beginning of 2011, according to Hinze.
Expected 2012 market demand for uranium, meanwhile, stands at 187 million pounds, compared with 181 million pounds in 2011, he said.
So, overall, uranium demand has remained strong, and there was never any real doubt over the survival of nuclear power.
The reasons to be bullish on uranium remain the same as they were in 2007, when uranium appeared to be in a bubble, with prices topping $100 a pound, said Adnani.
Globally, "we consume significantly more uranium than we mine," the "Megatons to Megawatts" accord expiration will cut supply by about 15%, and growth coming out of emerging economies will nearly double the world's nuclear capacity by 2030, he said.