China’s surging ahead with the world’s largest nuclear development program, and two years after the Fukushima disaster, Japan seems ready to resume domestic atomic plant operations. Both these factors suggest that uranium could soon recover from what has been its second consecutive yearly slump.
Bloomberg data suggests that uranium prices for immediate delivery could go up to $55 per pound through 2013, after having dropped to an average of $48.72 over 2012.
Japan’s increasing demand combined with China’s ambitions may cause a drop in uranium supplies. The latter hopes to multiply its national nuclear capacity five times by 2020.
While such moves would surely help uranium producers like Australia's Paladin Energy Ltd. (ASX: PDN), it would also temper the momentum of liquefied natural gas exporters based in Qatar and even Australia. These exporters have, after all, had a field day during Japan’s no-nuclear phase covering the past two years.
“The biggest pressure on price at the moment is not necessarily the downgrade to demand since Fukushima, it’s this massive inventory overhang,” said Joel Crane, the vice president of research at Morgan Stanley in Melbourne. “Should the Japanese government give the green light to restarts, that overhang is instantly gone and that will be very positive for prices.”
Japan has 46,148 MW installed nuclear capacity distributed over 50 plants, and after the recent Liberal Democrat Party victory, anticipation has grown that the previous government’s shutdown of the nuclear power sector will be overturned.
Even if that happens, though, it won’t be a rapid shift. Just recently, geological faults underneath nuclear plants became a hot topic with the Nuclear Regulation Authority in Japan. And public sentiment is still quite firmly opposed to nuclear power in the wake of Fukushima.
On the other hand, China is moving forward with its plans to build 26 or more new reactors. Per the World Nuclear Association, China’s present 14 reactors and future plans would account for more than 40 percent of nuclear development worldwide, and the nation’s nuclear capacity could reach as much as 60 GW by 2020.
Paladin saw its shares rise 22 percent in Sydney just after the Japanese government change. The company has two uranium mines in Africa along with Australian exploration assets.
Energy Resources of Australia Ltd. (ASX: ERA) saw its shares go up 13 percent in the same period. Energy Resources’ Ranger mine is responsible for almost 10 percent of worldwide uranium mining. And Australia, of course, has the world’s biggest known reserves of uranium.
In any case, Japan may see some nuclear action quite soon (though not straightaway), since the continued nuclear shutdown has been driving fossil fuel prices up sharply and has caused overall losses amounting to $8.4 billion for Tokyo Electric (TYO: 9501) and seven other utility companies in that country.