Uranium Boom, Uranium Bust

by Valorie Sands, Minyanville staff writer

Will uranium ever be the new gold? Maybe... but not quite yet. Despite its recent plunge to below $40 per pound, which is the first time it has dipped that low since 2006, uranium inventories remain plentiful in the US and Europe. But that could soon change.

The new low looks like a low-risk entry point, as the long-term outlook for uranium is positive, supported by a renewed pro-nuclear movement on the near-term horizon. In Japan, concerns about air pollution and rising costs have quelled the nuclear opposition. Recently a pro-nuclear government was elected, so Japan's 48 inactive reactors should come back online sooner than expected.

Also, countries including Germany and China are planning to initiate new nuclear reactors and restart existing ones for the first time since the Fukushima disaster. After the catastrophe, shares of even the largest uranium explorers and producers like Cameco CCJ, the "ExxonMobil of uranium," plunged 61% in less than a year.

With uranium recently falling to $39.50 per pound, buyers -- especially utilities -- are currently trying to take advantage of the low spot prices. However, only a few small sales transactions are going through, as sellers are resisting filling large orders taken at such depressed levels. And in anticipation of Japan's new pro-nuclear regulations taking hold, producers are also holding out for higher prices in what could be a new dawn for nuclear power.

In Japan, a new energy policy went into effect July 8 and already Tokyo Electric Power Co. (TYO:9501) has filed with the nuclear regulatory authority to restart two idle reactors. Four additional Japanese utilities are expected to follow in Tokyo Electric's footsteps with applications to be filed in the coming week.

In other countries, the anti-nuclear movement has also proved expensive and environmentally counterproductive.

In China, the noxious air pollution situation seems most critical. A recent New York Times headline said it all: “In China, Breathing Becomes a Childhood Risk." To improve air quality, a six-fold increase in China's installed nuclear capacity is expected by 2020; that would represent the largest source of future nuclear demand worldwide by far.

Prior to Fukushima, Germany was on track to reducing noxious emissions to a record low. Then, in the wake of the disaster, eight nuclear reactor plants were shut down. By 2012, carbon dioxide emissions had increased to the point where some German utilities started suing the government in opposition to rising electricity costs and air pollution.

Using nuclear power to replace coal and gas power has prevented 1.8 million deaths globally since the 1970s and could save millions more lives in future decades, concluded NASA researchers in a recent study.

The World Nuclear Association (WNA) estimates a uranium short fall in future years, as rising nuclear demand requirements are forecast through the next half century. A deficit of about 40,000 tonnes uranium (tU) is WNA's estimate for 2030; (2030 demand, 137,000 tU; 2030 primary production, 97,000 tU).

"We forecast spot prices to average above $60/lb in 2013 and north of $70/lb in 2014 and 2015 before settling to $70/lb in the long term," said David Sadowski, an analyst for Raymond James.

Current uranium stock buying opportunities include some of the world's largest producers like those held by the Global X Uranium ETF URA. Uranium producers and funds -- including Paladin Energy PDN PDN, Uranium One UUU, and Uranium Participation Corp. U -- should also benefit from a spot price rebound.

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