The Long Road from Fukushima
We might be early, but look what’ s setting up for a return to favor! Uranium, selling at half its all time (and 5 year) high, seems to be perking up. While some unfavorable fundamentals are still in place, a number of more positive trends are underway. Briefly:
Bearish
US Nuclear power projects are uncompetitive with gas fired power at under $8/mcf feedstock cost. New capacity appears unlikely.
With 48 of the country’s 50 reactors idled, Japanese uranium stockpiles are well above normal at an estimated 60 million pounds (a little over two years’ consumption if all units running), rising another 40 million pounds due to take or pay deliveries over the next several years.
Favorable
Substantial abandoned new/expanded mining projects in Kazakhstan, Australia, Russia, Canada since Fukushima, the Japanese Nuclear Stand Down, and Germany’s decision to phase out older power units and accelerate the shut down of all nuclear generation units.
High cost mine closures in Australia, the United States (a net importer) and the end of the HEU (reprocessing agreement between US and Russia) have trimmed supply to about 10 % below normal demand. More closures are likely, especially by publicly held operators.
Meanwhile scheduled shutdowns of (mostly) Korean and (some) French nuclear capacity are behind schedule.
Catalysts?
Continued nuclear project development in Saudi, UAE, UK, China, and progress in India, with up to 90 plants possible (as per Cameco) by 2022. Note, though, this industry is rife with inaccurate status reports, rumors, delays, and overruns. We do know that 3 Chinese reactors have commenced this year – somewhat late but, relative to the usual nuclear cycle, on track, with another 30 in construction, as part of a Can Do Energy Policy. In addition, Chinese utilities have taken equity positions in foreign projects (UK, Pakistan, and Romania).
Ninety new reactors would require 135 million pounds of ‘core loading’ plus incremental annual consumption of around 45 million pounds. At current prices there appears to be only 30 million pounds of new uranium supply.
The key catalyst for nearterm uranium fundamentals is the possible restart of a third of the shuttered Japanese locations over the next year or two, after favorable comments by NRA officials on an inspection cycle. While it is reasonable to be skeptical, as long as this is possible, Japan is unlikely to liquidate additional inventories (having dumped some stock over the last couple years). However, if the door slams on nuclear power in Japan, the inventory overhang could consume several years’ growth.
The point here is that, at a minimum, it seems appropriate for investors to pay attention to the uranium story.