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Uranium: Surging Demand in Nuclear Industry

March 9, 2012 by · Leave a Comment 

COMMENTARY-ProspectingJournal.com-Few can doubt that nuclear power has taken a tumble since the 2011 Fukushima disaster. Last year Japan shut down all but two of its reactors for maintenance, but stern resistance has thus far prevented the Japanese government from bringing any of them back online. The population is clearly still reeling from the effects of Fukushima and as a result the rest of the nuclear industry has placed a question mark over the region, resulting in much uncertainty about expected global demand for uranium. If Japan fails to restart any reactors soon, it will have lost all of its total nuclear output by April or May, marking the first time nuclear production will have dropped to zero since 1966. The past year has also seen nuclear shut downs in Germany, and a notable halt in power plant construction in the majority of the Western world. Anthony Young, Dahlman Rose Analyst, noted, “from a supply-demand perspective, demand has certainly decreased versus where we were this time last year.” And yet miraculously the outlook for the nuclear industry is bullish, thanks to powerhouse emerging economies that are likely to provide our global uranium markets with shortages over the course of the next few years.

The nuclear industry is certainly poised for a bubble in the long term. There are currently 60 nuclear reactors under construction globally with an additional 163 on schedule to follow, according to the World Nuclear Association. Many analysts feel the industry is still susceptible to Japanese and German slowdowns in the short run, but the impact of this will prove minimal in any longer term scenario. Young stated, “if you have any sort of time horizon – 12, 24, 36 months – our sense is that uranium prices will be higher and that should be reflected in the equities”. For now, uranium miners are hesitant about increasing production capabilities because spot uranium prices have yet to recover to pre-Fukushima levels. They have been sitting in and around $52 a pound, and this bodes weakly when compared with the pre-Fukushima prices of above $70. David Talbot, analyst at Dundee Securities, is nonetheless optimistic. He exclaimed, “I’m quite bullish. I think the spot price will average $65 this year, and $75 next year”. Such sentiments are echoed in the industry. In fact, there are several key factors coming into play that will most likely ensure that uranium remains in heavy demand and prices are pushed upwards.

Amongst analysts there is a common belief that South Africa is on the verge of injecting new life into the industry. South Africa is looking to boost its energy production and firms from the United States, Japan, South Korea, Russia and France are battling to win over a contract holding an estimated worth of between $52.3 billion and $130.8 billion. Such a move would quickly make the industry a seller’s market and rapidly increase uranium demand. It is a deal investors will be keeping a keen eye on. But they will also be looking to Russia. The country currently sells downgraded uranium based on a pact that will expire next year. The removal of this type of Russian uranium production will easily take 24 million pounds of supplied uranium off the market next year. It all means that the next few years will likely see increasing demand coupled with a lagging supply of uranium. This bodes extremely well for major miners and producers.

That, coupled with the fact that Japan may indeed restart its nuclear facilities, gives little cause not to be optimistic. With global electricity demand set to rise by more than 80 percent by 2035, prices and profits look to exceed those witnessed before 2011’s nuclear disaster.

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Jason Staeck
ProspectingJournal.com

 

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