Kyushu Electric Power Co. received final local approval last Friday to resume power generation at its Sendai nuclear plant in Kagoshima Prefecture. All reactors in Japan have been shut since the March 2011 meltdowns crisis at Tokyo Electric Power Co.’s Fukushima No. 1 nuclear plant.
The uranium spot price jumped 5 percent last weekend to $39.25 US per pound of U3O8. The trend continued this week with prices climbing to their highest level in 16 months but there are other factors besides Japan driving the uranium market higher, including the possibility of a supply deficit in the next three years.
The Solactive Global Uranium Total Return Index, which tracks 21 companies in the uranium mining industry, rose the most since December 2008. The index is still down 80 percent from its highest closing price in 2011.
Japan used to rely on its 48 nuclear reactors to provide 30 percent of its energy. Then came the earthquake and tsunami that triggered a meltdown at the Fukushima plant in 2011. By May of 2012, all of Japan’s reactors had been shut down, Germany had dropped nuclear power and things looked grim for the industry. The knowledge of a future need for uranium was tempered by the low price being paid for it, and uranium companies held their collective breaths and purse strings as they waited for a recovery.
The price for uranium looks to finally have bottomed at $28 per pound, still far off the mid $70s the material was fetching prior to Fukushima. Strength in spot uranium seems very credible driven by a growing population, rising electricity demand, higher demand for clean energy, new manufacturing facilities and louder calls to use nuclear power to fight climate change.
New reactors under construction in Europe, the Middle East and Asia are setting up a longer-term supply-demand imbalance of around 10 million pounds to a number far greater within 10 years. That’s likely why speculators are getting into the nuclear fuels space and driving uranium prices higher.
Germany abandoned its nuclear program post-Fukushima, but with rising electricity prices in Europe‘s top economy, that decision may come back to haunt Chancellor Angela Merkel. Although France is looking to lower its reliance on nuclear, this is more of strategic decision to diversify its energy supply. Therefore saying they are moving away from the power source is a matter of interpretation since they still largely rely on nuclear.
Given utilities’ need for supply, the market should prepare itself for a new wave of contracts in 2015. That’s important because a large factor in depressing uranium prices has been the absenteeism of utility companies since late 2012.
As Raymond James analyst David Sadowski notes in his report, “more buying with Japan less of a dumping threat, combined with reduced spot supplies should squeeze the market and continue to put upward pressure on prices.”
According to the Australian Bureau of Resources and Energy Economics (BREE) prices for uranium in 2015 are expected to rebound in response to expected higher consumption not only in Japan but also in China.
Sell-side analysts also contributed to the rally in uranium price, as H.C. Wainwright analyst Jeffrey Wright thinks that uranium price can cross $50 per pound over the next year. Uranium futures for February delivery closed at $42 per pound yesterday and crossed the $40 level first time since June last year.