Signs of spring in global nuclear winter
A nuclear winter persists across the uranium industry more than two years after the Fukushima disaster, but look closer and there are signs of life from the developed and developing worlds.
The greenest shoots appear to be in China, where the nation's economic planning agency was told this week that Chinese nuclear power production would grow by 20 per cent this year.
China was aggressively growing its nuclear power capacity before the Fukushima tragedy in March 2011, when a deadly tsunami caused a meltdown at a Japanese nuclear plant.
The disaster prompted China to slow the pace of nuclear approvals, and the uranium sector has since eagerly awaited any sign Beijing might revive its ambitious growth plans.
While He Yu - chairman of the China Guangdong Nuclear Power Group - did not announce a full-scale revival of the nuclear building plan when he addressed economic planners this week, he did confirm China would install an extra 3.24 gigawatts of nuclear power this year.
That will take China's nuclear capacity from about 12 gigawatts to just under 16 gigawatts, and the nation expects to have 58 gigawatts of nuclear generation by 2020.
UBS commodities analyst Tom Price said despite the 20 per cent rise being expected, it was still a reminder the sector was far from stagnant.
"The market will get excited by 20 per cent, it's a big number ... expect a lot more to come over the next five to 10 years," he said.
"When the Fukushima disaster happened, people thought China would just stop everything but it turns out they're not going to. The fact is, China is quite determined to diversify away from their massive coal dependency, and nuclear is a screamingly obvious one for them."
The World Nuclear Association believes China has 51 further uranium plants on the drawing board, and approval to build some of those projects is what Australian uranium plays like Paladin Energy and Toro Energy are desperate for.
When marking the first anniversary of Fukushima a year ago, uranium bulls believed the spot price for uranium had reached rock bottom at about $US51 a pound.
But things got worse, and the second anniversary has been marked with the spot price down at $US42.25 a pound.
With 48 of Japan's 50 reactors still closed, Credit Suisse expects demand for uranium to be weak enough to keep the price below $US48 until at least June. What happens after is unclear; the new Japanese government appears keen to restart some reactors but has also vowed to reduce Japan's dependence on nuclear longer term.
Some believe delays in establishing new standards will prevent any Japanese reactor restarts this year, while others like Cameco - the world's third biggest uranium producer - predict Japan will have eight reactors up and running by Christmas.
Mr Price believes other factors are combining to create a tighter uranium market than many people realise; a deal between the US and Russia to convert old nuclear weapons into fuel for civilian nuclear power plants will end this year, meaning close to 10 per cent of the world's nuclear fuel supply will disappear from the market.
Mr Price also pointed to BHP Billiton's decision to defer development of one of the world's biggest new uranium mines at Olympic Dam in South Australia.
"The market is actually tighter than people realise and I think people have been focusing too much on Japan and the risk of facilities being closed."
While China, Japan, India and South Korea are seen as the future drivers of uranium demand, parts of Europe are also keen to buck perceptions the continent has turned its back on nuclear. Those perceptions were built on high-profile decisions by the likes of Germany to abandon nuclear in the aftermath of Fukushima but others such as Britain are keen to increase the amount of nuclear in their power mix to help meet targets for carbon emission reductions.
Britain may install as much as 16 gigawatts of nuclear power by 2025 but process is not easy: a host of British companies have baulked at the cost of building new reactors, while others are lobbying the British government for treasury backing to ensure their projects go ahead.
Those talks continue, but British Energy Minister John Hayes said his government was "determined to make Britain a leading destination for investment in new nuclear".
"I am the most pro-nuclear Energy Minister the UK has had for a generation," he said.
Mr Hayes said Britain's nuclear build could create trade opportunities with Australian miners. "Australia is the world's third-ranking uranium producer and holds almost a quarter of global reserves so it's entirely reasonable to expect that a nuclear renaissance in the UK, and in places like China, would benefit the Australian uranium sector," he said.
His words will offer encouragement to the likes of ASX-listed Toro, which will know by March 31 whether Environment Minister Tony Burke will allow it to build Australia's next uranium mine. If approved, the mine could be operating at Wiluna in Western Australia by 2015, and Toro chief executive Vanessa Guthrie said 2013 shaped as the year the supply and demand equation would turn in favour of the uranium industry.
"Uranium is almost through the bottom of the cycle and we are starting to see some return of interest, even if that's not yet investment in the sector," she said.
Frequently Asked Questions about this Article…
More than two years after Fukushima the article describes a 'nuclear winter' persisting across the uranium industry, but also signs of recovery. Uranium spot prices have fallen from about $US51 a pound a year after Fukushima to about $US42.25 a pound at the second anniversary, and demand remains weak while many Japanese reactors are still closed. At the same time, factors such as Chinese nuclear expansion and the end of a US–Russia weapons‑to‑fuel deal are creating potential supply/demand shifts that could tighten the market over the coming years.
China told its economic planners it expects nuclear power production to grow by about 20% this year, with an extra 3.24 gigawatts of capacity taking total capacity from roughly 12 GW to just under 16 GW. The World Nuclear Association notes China has dozens of plants on the drawing board. That potential demand growth is exactly what Australian uranium companies such as Paladin Energy and Toro Energy are hoping for, because more Chinese reactors would increase global uranium demand.
Prices have been pressured by weak demand from Japan — 48 of Japan's 50 reactors remained closed at the time of the article — and market sentiment after Fukushima. Credit Suisse expected prices to stay below $US48 a pound until at least June. Potential changes include Japanese reactor restarts, Chinese and British nuclear build programs, the ending of the US–Russia weapons‑to‑fuel conversion (removing close to 10% of supply), and supply deferrals such as BHP Billiton delaying Olympic Dam development, all of which could tighten the market.
The outlook was unclear: the new Japanese government appeared keen to restart some reactors but had also pledged to reduce long‑term nuclear dependence. Some analysts expected delays in establishing new standards could prevent restarts this year, while companies like Cameco predicted up to eight reactors might be running by Christmas. If reactors are restarted, uranium demand would rise and could support higher prices, but timing remained uncertain.
The article reports the conversion deal between the US and Russia — which turned old nuclear weapons material into fuel for civilian reactors — was due to end, removing close to 10% of the world's nuclear fuel supply from the market. That removal of secondary supply is cited as a factor that could make the market tighter than many expect.
BHP Billiton deferred development of one of the world's biggest new uranium projects at Olympic Dam in South Australia. The article notes analysts view that deferral as contributing to a tighter market because it delays a major new source of supply, which is significant for investors watching future uranium availability and pricing.
Yes. The article says Britain may install as much as 16 GW of nuclear power by 2025, and the UK Energy Minister indicated he wants Britain to be a leading destination for new nuclear investment. He also suggested a UK nuclear renaissance could create trade opportunities with Australian miners — Australia being a top producer with large reserves — which would benefit ASX‑listed uranium companies if new projects go ahead.
The article highlights that Australian uranium plays like Paladin and Toro are watching global nuclear developments closely: China and Britain’s potential builds could increase demand, while supply factors (BHP’s Olympic Dam deferral, the end of the US‑Russia conversion deal) could tighten the market. Toro was awaiting an Australian government decision by March 31 on a proposed Wiluna mine that could operate by 2015, and Toro’s CEO suggested 2013 might be when supply and demand begin to turn in favour of the industry. Investors should note the market was still weak at the time, with low spot prices and uncertainty around Japanese restarts.
Call 1300 880 160
Start a chat
Schedule a call
