Uranium Rally Falters on Japanese Nuclear Delays: Energy Markets

Uranium’s rally from a three-year low is stalling amid signs Japan, once the world’s third-biggest nuclear power producer, will keep all but a handful of its reactors offline this year.

The atomic fuel has slipped 6.8 percent to $42.40 a pound since the Liberal Democratic Party won Dec. 16 elections, erasing most of the 12 percent gain in the six weeks before the vote. While the LDP pledged to review the previous administration’s zero-nuclear policy, regulators probably won’t allow any more plants to start in 2013, a survey of power companies by Kyodo News showed. Uranium will average less than $48 a pound in the six months ending June, the lowest for this time of year since 2010, according to Credit Suisse Group AG.

A delay in the resumption of nuclear plants would be a blow for uranium producers from Australia to Namibia, while boosting natural gas exporters such as Qatar, which helped plug Japan’s power deficit after the March 2011 meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The disaster sent uranium tumbling as countries from Germany to China said they would phase out atomic power or slow project approvals. All but two of Japan’s 50 reactors are still shut and must meet stricter safety standards before they can restart.

“There is much uncertainty around the entire nuclear program in Japan,” Jonathan Hinze, a senior vice president at Roswell, Georgia-based Ux Consulting who forecasts prices won’t exceed $50 before the end of the year, said in an e-mailed response to questions. “Due to Japanese reactor outages as well as smaller reductions in demand from Germany and elsewhere, there continues to be an ample supply of uranium for near-term delivery. We do not expect a rapid price run-up is likely.”

Price Low

Uranium for immediate delivery slid to $40.65 a pound on Nov. 5, the lowest since March 2010, before rebounding to $45.50 on Dec. 13, according to Ux, which provides research on the nuclear industry. The price climbed as high as $152 in June 2007. It will average $45 this quarter and $47.50 in the three months ended June, the median of five analyst estimates this year by banks including Credit Suisse and Toronto-Dominion Bank compiled by Bloomberg shows.

Japan generated 280 billion kilowatt-hours of electricity from atomic plants in 2010, behind only the U.S. at 807 billion and France at 410 billion, according to the World Nuclear Association. That dropped to 156 billion kilowatt-hours in 2011. The nation’s estimated uranium requirement was 4,636 metric tons in 2012, down from 8,003 tons in 2010, the WNA data show.

The country’s 10 largest power producers generated or purchased 2.1 percent of their electricity from nuclear plants in January, down from 27 percent in February 2011.

Gas Purchases

The LDP said in its election campaign that the country needs nuclear reactors to reduce the cost of importing fuel for thermal plants. The nation paid 6 trillion yen ($63 billion) for a record 87.3 million tons of liquefied natural gas in 2012, customs data show. The fuel cost an average $16.70 per million British thermal units, or almost six times as much as the $2.83 average price of U.S. gas traded on the New York Mercantile Exchange last year.

Natural gas for April delivery gained 1 percent to $3.68 per million Btu on the Nymex, up 9.8 percent this year.

Japan will restart atomic power plants once their safety is assured, while the government will still seek to reduce its nuclear dependence through energy-saving efforts and a shift to renewable sources, Prime Minister Shinzo Abe said in a Feb. 28 speech, two months after the election.

Reactor Restarts

The Nuclear Regulation Authority in January approved safety standards for reactors idled after the Fukushima disaster, which caused the evacuation of 160,000 people. Plants must meet the new rules before they can resume. The regulations, to be implemented in July, mean restarts are unlikely in 2013, Kyodo News reported March 4, citing a survey of Japan’s 10 biggest power companies.

“If true, that bodes very negatively for uranium prices this year,” said Joel Crane, the vice president of research at Morgan Stanley in Melbourne. Prices may average $46.75 a pound this year, he said.

All Japan’s reactors may be shut before the end of the year when the only two currently running, at Kansai Electric Power Co.s Ohi plant, close for scheduled maintenance. The company is required to idle the No. 3 unit on Sept. 2 and the No. 4 unit on Sept. 15, Takahiro Senoh, the company’s spokesman, said Jan. 28.

“We don’t intend to delay the approval unnecessarily, but we don’t know when the first restart will happen,” Gyo Sato, a spokesman for the NRA, said by phone March 12 in Tokyo. “We are still reviewing how we should proceed with the approval process, so we can’t even comment how long it will take.”

Accepting Consignments

Kansai Electric Power Co., Shikoku Electric Power Co. and Shikoku Electric Power Co. submitted plans to restart a total of six reactors this year when they applied for government approval to increase electricity tariffs for households.

Cameco Corp., the world’s third-largest uranium miner, expects as many as eight reactors in Japan will come back online this year, Chief Executive Officer Tim Gitzel said Feb. 11 in a phone interview from the company’s headquarters in Saskatoon, Canada. Utilities are accepting consignments of the radioactive metal under long-term contracts after previously deferring some shipments, he said.

About six of Japan’s reactors may restart by the end of this year in addition to the two that resumed in 2012, with two-thirds of plants operational within several years, Luc Oursel, Areva SA’s chief executive, said March 4. Paris-based Areva is the world’s second-biggest supplier of nuclear fuel, WNA data show.

Brighter Outlook

China, the world’s biggest energy user, is also moving ahead with a construction program for nuclear plants after lifting a moratorium on approvals in November. The nation is building 29 reactors to add to the 16 it already operates and has 51 planned, according to the WNA. The nation accounts for 34 percent of the plants scheduled globally and may increase its capacity to 58 gigawatts by 2020 from 13 gigawatts.

“The longer-term picture for uranium prices is much brighter,” Energy Resources of Australia Ltd., the uranium producer controlled by Rio Tinto Group, said in its 2012 annual report on March 5. “Demand will continue to increase as China constructs an estimated 40 to 50 new nuclear power plants this decade, and new reactor construction continues in South Korea, the U.S., the United Arab Emirates, France, Finland, Russia, India and other countries.”

Reputational Blow

Europe’s nuclear industry must regain the trust of investors after delays and cost overruns at projects in Finland and France dealt a blow to its reputation, Yves Brachet, Westinghouse Electric Co.’s chief executive officer for Europe, Middle East and Africa, said March 6 in an interview in Prague.

The cost of Finland’s 1,600-megawatt Olkiluoto-3 reactor, supplied by Areva and Germany’s Siemens AG, has more than doubled to an estimated 8 billion euros ($10 billion), while Electricite de France SA’s new reactor in Flamanville is also running late and almost three times over budget.

France is considering a law that may reduce dependence on nuclear power, while Germany has pledged to phase out nine atomic facilities by 2022. A glut of government-subsidized wind power in the U.S. is shrinking margins at nuclear plants, Christopher Crane, the chief executive officer of Chicago-based Exelon Corp., said in a phone interview this month.

Protesters against the completion of Taiwan Power Co.’s Longmen Nuclear Power Plant, the island’s fourth atomic facility, yesterday vowed to continue their campaign after mustering more than 68,000 people in weekend marches across major cities. The company missed a deadline to start commercial operations at the end of 2012.

Stockpile Reduction

Restoring Japan’s nuclear reactors may take as long as three years, Nicholas Browne, a Singapore-based gas analyst for Wood Mackenzie, said an interview on Feb. 27. Even then, the nation’s nuclear capacity will be less than half what it was before the Fukushima disaster because the age of some reactors may render them unsafe to restart, he said.

Japan Atomic Power Co. sold uranium supplies while Tokyo Electric is considering the sale of part of its stockpiles, Kyodo News reported Feb. 20, without saying where it got the information. Japan Atomic faces a debt repayment deadline in April with no prospects of restarting its reactors, the news agency said. Mitsuru Marutani, a Tokyo-based spokesman at Japan Atomic, declined to disclose details on its uranium supplies.

“The spot market is small and new sources of material will have a negative impact on price,” Rob Chang, an analyst at Cantor Fitzgerald LP in Toronto who predicts uranium prices may average $55 a pound this year, said in an e-mailed response to questions. “We expect anywhere between 5 to 15 reactors will be placed back in operation with relative ease, with the first few coming on near the end of the year.”