Uranium Poised for Bull Market as Japan Reviews Reactors: EnergyBen Sharples and Tsuyoshi Inajima
Japan, once Asia’s largest nuclear power producer, may restart one in every five reactors this year after safety reviews following the Fukushima disaster, driving uranium back into a bull market.
The nation may open 10 units, according to the median of 11 analyst estimates compiled by Bloomberg. Japan has been without atomic power since September, with its 50 reactors shut pending inspections by regulators. Uranium will average $41 a pound this year, or 14 percent more than now, a separate survey of five analysts showed.
Uranium slumped 51 percent since the earthquake and tsunami that led to the meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant in March 2011. Stronger demand will boost profit for producers from Kazakhstan to Australia, some of whom canceled projects and closed mines as prices tumbled. Opening reactors will make Japan less dependent on imports of fossil fuels that contributed to a record current-account deficit.
“The Japan story is a major one still driving the uranium market,” said Jonathan Hinze, a senior vice president at Ux Consulting Co. in Roswell, Georgia, who forecasts 10 reactors to restart. “There are positive developments on the demand side, which should couple with slower supply increases, ultimately resulting in higher prices later this year.”
Prices fell 21 percent to $34.40 in 2013, the biggest drop since 2008, and averaged $38.45 last year, according to Ux, which provides research on the nuclear industry. They dropped to $34 in August, an eight-year low. The atomic fuel traded as high as $152 in 2007, according to the data starting in May of that year. Uranium closed at $35.90 yesterday.
Tokyo Electric, Japan’s biggest power utility, and Tohoku Electric Power Co. are among seven companies that applied for safety inspections on 16 reactors, according to the Nuclear Regulation Authority. The NRA has no fixed schedule to complete the checks, it said in November. Masaya Okuyama, a Tokyo-based spokesman for the regulator, declined to comment on when the inspections will be finished.
The forecasts in the Bloomberg survey ranged from six restarts to as many as 16. Tohoku Electric last month applied for checks on the No. 2 reactor at its Onagawa plant, according to a statement to the Tokyo Stock Exchange. Chugoku Electric Power Co. is seeking an assessment of the No. 2 unit at its Shimane site, according to a statement Dec. 25. Ten units will probably pass the NRA’s safety reviews, Sankei reported Jan. 20, citing unidentified people close to the regulator.
Public opposition to nuclear power after the Fukushima accident, the worst civilian atomic disaster since Chernobyl in 1986, may stymie the restarts. About 160,000 people were forced to evacuate the area because of the radiation fallout from the meltdown of three units.
Radioactive leaks at Fukushima have continued to erode support for atomic energy. Former Prime Minister Junichiro Koizumi said Nov. 12 that Japan should abandon nuclear power. A poll released last week by NHK, the national broadcaster, showed 42 percent oppose nuclear power while 21 percent support it and 33 percent are undecided.
Koizumi is supporting another anti-nuclear former prime minister, Morihiro Hosokawa, in his bid to become governor of Tokyo, Kyodo News reported Jan. 14. The Feb. 9 election will be a mandate on nuclear power, Koizumi told the news service.
“Before the upcoming Tokyo governor race, it was expected that it would be the year of Japan’s nuclear revival,” said Shinichi Yamazaki, a Tokyo-based analyst at Okasan Securities Group Inc., who expects Japan to restart six reactors. “With some major candidates calling for an end to nuclear power, the results of the elections may impact the government’s policy.”
Liquefied natural gas replaced nuclear energy as Japan’s primary source of power, driving up prices and inflating the country’s fuel bill. Spot LNG surged 8 percent in 2013, peaking at $19.40 per million British thermal units in February, according to data compiled from New York-based Energy Intelligence Group. Fuel oil and coal imports also accelerated since the Fukushima accident.
Japan purchased a record 87.3 million metric tons of LNG in 2012, paying 6 trillion yen ($57.5 billion), double the amount in 2011, according to customs data. The country’s current-account deficit in November was the biggest in comparable data back to 1985, the Ministry of Finance said Jan. 14.
“There is no doubt the nuclear shutdown is damaging the Japanese economy,” said Akira Yanagisawa, a Tokyo-based researcher at the Institute of Energy Economics, Japan, who predicts 16 units will restart. “Japan’s national wealth has been outflowing to countries that produce oil and natural gas.”
The combined fuel costs for Japan’s nine regional power companies will almost double to 7.5 trillion yen for the year ending March 31, 2014, compared with three years earlier, the Ministry of Trade, Economy, and Industry said in an October report. The estimate assumes no reactors will start by March.
Tokyo Electric and seven other power utilities in Japan reported combined losses of about 1.6 trillion yen in the year ended March 2013. Kansai Electric, the Osaka-based company most dependent on atomic power, lost a total of 486 billion yen in the 2012 and 2013 financial years.
“To resume profitability of the utilities, there is nothing like restarting reactors,” said Reiji Ogino, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo who predicts 13 plants will restart. It will have a “tremendous impact on earnings,” he said.
Japan generated 280 billion kilowatt-hours of electricity from atomic plants in 2010, behind 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 tons in 2012, down from 8,003 tons in 2010, the data show.
Uranium is set for a “violent move higher,” Rob Chang, an analyst at Cantor Fitzgerald LP in Toronto who predicts 12 units will reopen, wrote in a Jan. 3 note. It will be a “kick-off year” for the fuel, he said. The five price forecasts compiled this year by Bloomberg range from $37.25 a pound to $45.
Kazakhstan, the biggest producer of the fuel, scrapped all new projects and Russia’s JSC Atomredmetzoloto last year shut a mine in Australia as prices slid amid a surplus that Raymond James Ltd. predicts will reach 8.8 million pounds this year, or about 5 percent of global demand.
The closing of operations “boosts the inevitability of a global uranium shortfall should prices remain depressed,” said David Sadowski, a Vancouver-based analyst at Raymond James who forecasts the nuclear fuel will average about $42 this year. The financial adviser predicts six reactors will restart in 2014.
Energy Resources of Australia Ltd., a unit of Rio Tinto Group, shut its Ranger mine in Australia last month after a tank split, and France’s Areva SA halted output at its Somair and Cominak projects in Niger for maintenance.
Shares in Energy Resources of Australia, which makes all of its sales from uranium, gained 0.4 percent to A$1.245 in Sydney. Rio Tinto slid 0.8 percent to A$65.29.
“This is a big transition year,” said Joel Crane, a vice president of research at Morgan Stanley in Melbourne who predicts uranium will average $37.25 a pound this year. “It’s probably the bridging year between Japanese closures and restarts. It’s one where the miners are going to have to make some pretty hard decisions.”