Even After Japan, Uranium Miners Aren't Going Anywhere

Mar.29.11 | About: Global X (URA)

Uranium miners have been pummelled ever since the 9.0 magnitude earthquake rocked Japan on March 11. Some stocks are down as much as 40 percent because there is still so much uncertainty about nuclear energy demand.

But now that a few weeks have passed, it looks like level heads are prevailing after assessing global nuclear demand from a bird’s-eye view. The analysts crunching the numbers have a clear message: Nuclear energy isn’t going anywhere.

Yes, there are concerns about governments getting scared about safety. However, “the longer-term thesis and indeed the nuclear renaissance remains intact,” noted CIBC World Markets analyst Ian Parkinson.

Mr. Parkinson is actually quite pleased with how well the Japanese reactors have performed so far: “While lessons will have to be learned and incorporated into the global reactor fleet, the fact that things aren't worse is impressive.”

Taking that into account, CIBC believes that global demand is just too strong for uranium to not recover. ”In order to secure national energy independence as well as environmental goals, we see no other option for countries like China, South Korea, and India,” Mr. Parkinson noted. China has stated a goal of 20 per cent of electricity generated by clean sources by 2030 -- though no one is quite sure just how quickly China, or any country, can turn on its pledges.

For context, about 15 percent of global electricity comes from nuclear sources, according to the World Nuclear Association. South Korea has the highest demand, with 35 percent of its total energy, while Japan was at 29 percent.

But don’t let all this optimism fool you. The uranium market is still going to take a hit, at least in the short term. RBC has also assessed the fallout from the earthquake, and expects lower Japanese, Chinese and German demand for uranium in the near future. Because of this, RBC lowered its demand forecast by approximately 125 million pounds from now until 2020.

Although uranium prices have plummeted, RBC thinks the market will correct itself because supply is already getting tight and new development is needed. For new mines to be built, and to be profitable, uranium needs to be around $80 per pound, and the plants already in operation will have to pay up.

For comparison, uranium was approximately $68 per pound before the earthquake struck and plummeted to about $49 on March 16.