The biggest drop in prices of uranium in two years may be ending as China and India plan atomic power developments that will more than double global production even after Japan’s nuclear disaster.
The radioactive metal has slumped 8.9 percent this year, the most since 2009, after tumbling as much as 27 percent as governments reviewed nuclear plants following the Japanese crisis in March, according to prices from MF Global Holdings.
China and India will lead a 46 percent increase in consumption by the world’s five biggest atomic power developers by 2020, according to data compiled by Bloomberg.
Soaring energy demand from the world’s fastest-growing economies is buoying uranium and prospects of mining groups from Cameco to Paladin Energy even after radiation leaks from Japan’s 40-year-old Fukushima Dai-Ichi plant sparked the worst nuclear disaster since Chernobyl in 1986. China’s Nuclear Energy Association said on May 12 that it would boost atomic capacity as much as eight times by 2020.
A day later, India’s Atomic Energy Commission said it would increase production thirteenfold by 2030.
“The question is whether what happened in Japan with older-generation reactors justifies not building newer, safer reactors, and to me the answer is no,” Spencer Abraham, a former US energy secretary who is now non-executive chairman of Areva, the largest nuclear equipment producer, said last week. “China recognises it can’t satisfy the growth in electricity demand in a single dimension and it really needs a diverse group of sources.”
A gigawatt, enough to power about 1 million US homes, requires 200 tons of uranium a year at full operating rates, according to the World Nuclear Association. China, India and South Korea expect to use 262 gigawatts by 2030, more than what the US, Japan, Germany and France produce together.
Nuclear energy was being held out by nations from the US to France and the UK as a potential solution to challenges posed by rising oil prices, which reached a record $147 (R1 025) a barrel in July 2008. Unlike fossil fuels, atomic power produces no greenhouse gas emissions, as governments around the world try to cut down on pollution.
Those considerations became secondary after the Japanese disaster showed construction flaws at the Fukushima plant. Tokyo Electric Power, the operator of the plant, posted a full-year loss of ¥1.25 trillion (R107 billion) on Friday.
Power requirements
None of that reduces the power requirements of the world’s fastest-growing economies. China’s economy will probably expand 9.5 percent this year, according to the median of 11 forecasts compiled by Bloomberg. India’s gross domestic product might grow as much as 8.5 percent in the current fiscal year, Chakravarthy Rangarajan, the chairman of the prime minister’s Economic Advisory Council, said on May 3.
“Fukushima has made us pause and rethink some of our projects,” Xu Yuming, the vice secretary-general of the Nuclear Energy Association, said on May 12. “Of course, the overall plan won’t be changed. China faces power shortages and we need to change our energy mix. To resolve these issues, we must develop nuclear.”
Even if Japan develops half of its proposed 19 gigawatts of nuclear power this decade, the country, together with China, India, Russia and South Korea, will add a combined 160 gigawatts by 2020, according to figures from the World Nuclear Association, Sanford C Bernstein, the Federation of Electric Power Companies of Japan and South Korea’s Economy Ministry.
South Korea may almost double its nuclear-fired capacity to about 36 gigawatts by 2024, accounting for 48.5 percent of the nation’s power generation, up from 31.4 percent today, according to the Ministry of Knowledge Economy. The country may add 10 reactors by 2020 totalling 12.8 gigawatts. That will require an extra 32 000 tons of uranium a year, according to calculations based on data from the World Nuclear Association. Global use will be about 69 000 tons in 2011.
Uranium, which trades outside organised exchanges directly between buyers and sellers, fell as low as $49.99 per pound of U308, the tradable form of the metal, in the three trading days after the March 11 earthquake, as Germany and Japan announced reviews of nuclear plants. It traded at $56.25 yesterday, according to prices tracked by MF Global.
The metal may rise as high as $65 a pound this year and advance to $75 in 2012, Fletcher Newton, a vice-president at Uranium One said on May 13. Morgan Stanley forecast it will climb to $64 in 2011 and $65 in 2012.
“Whether we like it or not, nuclear is still an option that’s reliable, low-cost and emission-free,” said Amir Adnani, the chief executive of Uranium Energy Corporation, a mining and processing company that is stockpiling the metal in anticipation of higher prices in the second half of the year. “In the next 20 years, the world’s nuclear capacity is going to double.”
A revival in demand may lead to a recovery in stocks of Saskatoon, Saskatchewan-based Cameco, a co-owner of the world’s largest uranium mine, to Subiaco, Australia-based Paladin, according to analysts.
Shares of Cameco may rise to C$37.40 (R267) in the next 12 months, said Raymond Goldie, an analyst at Salman Partners. The shares closed at C$26.36 on the Toronto Stock Exchange on Friday, down 35 percent this year.
Paladin may climb to A$3.50 (R25.80) in the coming year, after dropping 34 percent this year, according to Martin Stulpner, a Perth, Australia-based analyst at Macquarie Group. It fell 2.5 percent to A$3.15 yesterday on the Australian Stock Exchange.
Uranium prices still were not high enough to make it sufficiently profitable to extract, Rio Tinto Uranium managing director Clark Beyer said on May 13. The metal was at least $10 below the level required to encourage companies to increase production.
Price gains may be held in check as Germany and Japan assess development plans.
Germany, which relies on atomic energy for 23 percent of its supplies, might phase out plants as early as 2022, Georg Nuesslein, a legislator for Bavaria’s Christian Social Union party, said on May 4. Chancellor Angela Merkel ordered a halt to the country’s seven oldest reactors on March 15, removing more than 25 percent of its 20 700 megawatts of capacity, equivalent to the power needed to supply almost 21 million US households.
Siemens, which had planned to become the market leader in atomic power along with Russia’s Rosatom, has decided to abandon its nuclear plans after the Fukushima accident damaged market potential, Handelsblatt reported.
Japan, the third-biggest nuclear power producer after the US and France, was reconsidering plans to increase the share of atomic energy to 50 percent from 30 percent, Prime Minister Naoto Kan said on May 10. About 13 gigawatts of capacity is currently closed in Japan due to the earthquake, according to Societe Generale. No decision has been made on whether to restart the plants.
“Unless we see a supply shock, it’s difficult to see a situation where we’ll see a dramatic increase in the uranium price, and that’s really the only catalyst that would bring investors back rapidly into the uranium space,” Edward Sterck, an analyst at Bank of Montreal, said on May 19.
The metal would be little-changed at $60 a pound this year and in 2012, he said.
Macquarie Group said the metal would average $60 a pound this year, 17 percent less than previously forecast. The bank reduced its 2012 estimate by 20 percent to $56, its 2013 forecast by 31 percent to $45 and its 2014 estimate by 7.7 percent to $60.
“The Fukushima disaster has resulted in lower uranium demand from Japan and Germany in the short and long term,” the Sydney-based bank said. “Our global uranium supply and demand balance has moved from small surplus to large surplus between now and 2017.”
Global consumption
Global electricity consumption will rise 75 percent to 35 300 terawatt-hours by 2035 from 2008’s 20 183 terawatt-hours, according to the International Energy Agency.
China’s safety review of its atomic power plants would have little effect on expansion, said Xu at the Nuclear Energy Association.
India’s capacity will rose to 60 gigawatts by 2030 from 4.8 gigawatts, according to the country’s Planning Commission.
South Korea aims to generate 60 percent of its energy from atomic plants by 2030, compared with about 35 percent now, Deputy Minister for Energy and Resource Policy Kim Junggwan said last month.
“Countries seek diversified sources of energy and security of supply at a time when energy demand is growing rapidly and is essential to an improved standard of living,” Cameco, part-owner of McArthur River mine in Canada, the world’s largest deposit of high-grade uranium, said on May 6.
The US Nuclear Regulatory Commission last month renewed the operating licences for the Palo Verde Nuclear Generating Station in Arizona, the country’s biggest atomic plant, for 20 more years. The US, which produces 27 percent of the world’s nuclear power, said it would scrutinise licence renewals for utilities following the Japanese crisis.
“The right solution is to go forward and build safer, new-generation reactors,” Abraham said. “It will help diversify the fuel mix and contribute to energy independence. Overtime, cooler heads will prevail.” – Bloomberg