The numbers are almost unbelievable. China intends to spend as much as half a trillion dollars on construction of nuclear reactors in the next two decades.
China is dead serious about creating new sources of clean, low-carbon energy. After taking the lead in green energy industries like wind and solar power, China has decided that its best option for generating massive amounts of electricity lies in the power of the atom.
That's why China suddenly decided to double its plans for nuclear construction. Beijing's target is so ambitious that the leadership admits it may fall short of its goal. Still, China's plan for the next two decades is jaw-dropping.
The target is 245 new reactors!
To put that in perspective, consider the number of reactors operating around the world today. The global total is now only 443. China's ambitions would increase the number of nuclear reactors in the world by 64 percent.
That means a big increase in uranium consumption.
How High Will It Go?
Uranium prices are already starting to spike upwards thanks to Chinese booming Chinese demand.
How is that possible? China is building nuclear reactors with unprecedented speed but only a few new plants have come online. So why is China affecting global uranium markets already?
That answer in a word is stockpiling. China is buying far more uranium than it consumes and stockpiling the metal as fast as it can.
China has stockpiled 17,000 tons of uranium over the last five years. It may buy at least 35,000 tons more over the next decade to ensure the country has adequate supplies, according to Bloomberg. China has also been buying heavily on the spot market, gobbling up as much as 25 percent of the world's supply. Those contracts could lead to a shortage in the rest of the uranium-consuming world.
Chinese demand has already driven uranium prices up sharply. After a two-year lull, prices have risen more than 50 percent.
Uranium prices peaked at $135 a pound in 2007. But that price bubble collapsed as the global economic crisis set in just as uranium miners were ramping up production.
Now the price per pound of uranium has rebounded to more than $60 per pound. The question is, how high will it go this time?
The fact is, the world is already consuming more uranium than it is able to mine. Even though the number of working mines has increased by more than two dozen over the past ten years, demand already exceeds supply. According to one estimate, uranium demand exceeds mined supply by 100 million pounds per year.
One of the biggest sources of cheap nuclear material, especially for the U.S., has been decommissioned Russian nuclear warheads. As part of an arms reduction agreement, Russia has been dismantling most of its nuclear arsenal and turning its warheads into nuclear fuel. But that agreement ends in 2013. Russian supplies are already being scaled back and a global shortage appears imminent.
A return to peak prices is definitely possible. Some analysts say that the nuclear industry could afford to pay more than $1,000 a pound if a shortage developed.
Where to Invest
Most average investors have no experience or interest in making direct investments in commodities. The obvious play is uranium mining.
China's mines are only able to provide a meager 2 million pounds of uranium a year. That's why Beijing is already locking up supplies worldwide.
Recently one of the world's largest uranium producers, Canada's Cameco (NYSE:CCJ), stunned the uranium world by announcing that it had signed an agreement with China Guangdong Nuclear Power to supply 29 million pounds of uranium concentrate in an agreement stretching through 2025.
Cameco One Year Chart
UxC Consulting estimates that China will quadruple its imports to 50-60 million pounds a year by 2020. That means China would consume 25 to 30% of total global uranium demand.
As China's demand ramps up, analysts are raising price targets. RBC Capital Markets predicts that China's moves to lock up supplies could trigger “the beginning of a multiyear bull-market cycle.”
RBC forecasts prices of $75 to $80 a pound by 2012.
Adding to the squeeze on uranium supplies is the difficult and long lead time needed to open new uranium mines. Inexpensive sources have already been developed. New sources are much harder to mine and many are located in unstable African countries.
Increasing the pressure even more are the nuclear ambitions of many other countries. India alone plans to increase its nuclear power consumption by 50 percent. Here's the global scorecard for major countries planning new reactors:
Reactors Planned or Proposed
Total (not including all countries)
That's just a list of the biggest players. With smaller countries in the mix, the total could rise above 500.
Investors willing to diversify risk should consult their brokers about ETFs which encompass a global basket of uranium mining and reactor construction firms.
It's true that prices have jumped already. But China's willingness to lock in a price of $65 a pound for the next 15 years, suggests that Beijing is hedging its bets against much higher uranium prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.