Unless Japan restarts nuclear reactors, uranium industry could be finshed

“Due to the huge impact of reduced demand from Japan, the reactor-restart story is likely to continue to be the main factor affecting the spot uranium price over the coming few months,

No Nukes, No Uranium BARRON’s By RHIANNON HOYLE 6 Oct 13 Japan’s 2011 disaster at Fukushima still weighs on national energy policies worldwide, as well as the commodity’s price. DJ-AIG Commodity Indexes Uranium prices are edging higher after a recent plunge to nearly eight-year lows, but that’s no reason for investors to pile in.

Demand for the nuclear fuel isn’t ramping up as expected. Japan, a major uranium user, has been slow to restart nuclear operations after the 2011 earthquake and tsunami that devastated the Fukushima Daiichi power plant, and stockpiles of U3O8—the most actively traded compound of uranium—are growing.
Prices were down 22% when they hit their nadir last month. At $34 a pound, the commodity was worth just half what it had traded for prior to Fukushima.

Uranium is now trading at about $35 a pound as prices gravitate back toward the material’s production cost, which some analysts estimate to be $40 a pound. However, the market remains focused on Japan’s nuclear-energy sector, which is still struggling to recover. In 2010, nuclear power accounted for 29.2% of Japan’s electricity production; last year, it was 2.1%.

“Due to the huge impact of reduced demand from Japan, the reactor-restart story is likely to continue to be the main factor affecting the spot uranium price over the coming few months,” says Jonathan Hinze, senior vice president at Ux Consulting, a nuclear-research consultancy. The demand outlook for North America and Europe, the two biggest nuclear-power generators, isn’t much better. The shale boom in North America has lowered the price of natural gas, giving utilities in Canada and the U.S. other options for generating electricity. In Western Europe, negative sentiment toward nuclear energy since the Fukushima disaster is creating obstacles for utilities.

Meanwhile, uranium production has increased, up 7% last year, according to the World Nuclear Association. Ux Consulting estimates that uranium supply exceeds demand by about 25 million pounds—double the level of last year—and a dramatic shift from a market that was in balance prior to Fukushima.

The oversupply prompted RBC Capital Markets last month to slash its near-term price forecasts for uranium by $10 each……. Investors looking to trade uranium have two options: stocks of mining companies or exchange-traded funds. Both have declined in line with uranium prices. Cameco’s shares (CCO.Canada) are down 14% since July 1, and the $125 million Global X Uranium ETF (URA), which tracks the price movements of nearly 20 miners and explorers, is down 9%, compared with a 5.3% gain in the Standard & Poor’s 500. The performance gap seems unlikely to change right away. http://online.barrons.com/article/SB50001424053111903320604579107541009210998.html