China is stockpiling uranium and purchasing the yellow metal in unprecedented quantities as part of its effort to build new nuclear reactors and provide electricity for its power hungry populace.
The nation may purchase about 5,000 metric tons of uranium this year, more than twice as much as it consumes, Thomas Neff, a physicist and uranium-industry analyst at the Massachusetts Institute of Technology in Cambridge, said in a July 6 telephone interview with Bloomberg News.
India and China are gearing up for the biggest expansion of nuclear energy since the 1970s oil crisis to cut pollution and supply their economies with enough fuel to keep them growing twice as fast as Europe and North America.
"They are essentially stockpiling in anticipation of new reactor build," said Neff, who is an independent director of GoviEx Uranium Inc., a privately held exploration company with interests in Niger. "They are stockpiling like crazy."
China's demand for uranium may rise to 20,000 tons a year by 2020, more than a third of the 50,572 tons mined globally last year, as it boosts output to 85 gigawatts, nine times its current capacity, according to the World Nuclear Association.
China agreed on June 24 to buy more than 10,000 tons over 10 years from Cameco Corp. (NYSE: CCJ), the world's largest uranium miner.
India's needs will grow 10-fold to 8,000 tons as it quadruples capacity to 20 gigawatts, Jagdeep Ghai, finance director at state-owned Nuclear Power Corp. told Bloomberg.
The boom, combined with slowing supply growth, may boost yellowcake prices after a three-year slump. Prices will jump by about 32% next year, the most since 2006, RBC Capital Markets told Bloomberg.
The spot price for uranium was at $41.75 a pound on July 5, according to Trade Tech's weekly price report. Uranium has plunged 69% since peaking at $136 a pound in July 2007 as mine operators boosted production, according to Roswell, Georgia-based Ux Consulting.
At least 27 mines in nine countries began operating in the past 10 years, adding as much as 65 million pounds a year to global output, according to Cameco.
"The uranium bull market of 2006 and 2007 stimulated the development of new supply, but we do not think it is enough," Toronto metals analyst Adam Schatzker wrote in a report. "The prevailing uranium price is too low to stimulate sufficient supply to cover future reactor requirements."
Companies that build reactors like Areva SA and miners that dig the metal out of the ground may see a rebound in their shares after taking a beating over the last three years.
Areva, the largest reactor builder, has seen its shares tumble 53% in the past three years. Miners that could benefit include Cameco, whose stock has fallen 60%, Paladin Energy Ltd., which has lost 63%, and Energy Resources of Australia Ltd., which is down 25%.
China plans at least 60 new reactors by 2020, Xu Yuming, executive director of the China Nuclear Energy Association, said in Beijing on July 6. The average 1,000-megawatt reactor requires about 400 tons of uranium to start, Neff said.
By comparison, the U.S. nuclear industry finds itself in catch-up mode after a near-meltdown at Three Mile Island sent the industry into a 25-year tailspin. Not one nuclear power plant has been built since the incident, mainly because the regulatory approval process is daunting and expensive.
In an effort to revive the moribund industry, utilities have applied to build more than 30 new reactors here in the United States. And to meet global-warming goals, 42 reactors could be built in the next two decades, according to the Electric Power Research Institute.
But just maintaining nuclear energy's current 20% share of power generation in the U.S. economy would require the construction of three reactors every two years - starting in 2016, the U.S. Department of Energy has said.
President Barack Obama gave the atomic energy business a solid boost in February when he announced $8 billion in government loan guarantees in support of a new nuclear power plant in Georgia.
But the regulatory requirements and the expanded up-front capital requirements will limit the ability of large-sized nuclear power plants to make a significant impact in the U.S. for the next five to 10 years, according to Dr. Kent Moors, a noted energy expert and Contributing Writer for Money Morning.
The same is not true, on the other hand, in the rapidly expanding mini-reactor market, said Dr. Moors, who is also the editor of the Oil and Energy Investor newsletter and is now unveiling his Energy Advantage advisory service.
These reactors are actually self-contained, maintenance-free "nuclear batteries," able to provide power to communities and rural areas for 30 years to 60 years before replacement.
News & Related Story Links:
- Bloomberg:
Uranium Bottoming as China Buys Supplies From Cameco - Wikipedia:
Three Mile Island - Money Morning:
Obama Looks to Restart U.S. Nuclear Industry With $8 Billion Federal Loan Guarantee - Money Morning:
The "New" Global Energy Sector: "The Profit Opportunity of Our Lifetime" - Money Morning Archives:
Columns by Dr. Kent Moors