China Closer To New Nuclear Construction Starts

by: NEIG

China might be getting closer to moving ahead with its new nuclear power projects, suspended last year in the wake of the Fukushima nuclear disaster in Japan. This was suggested last week by the former Director of the China National Energy Administration and Vice Chairman of the National Development and Reform Committee, Zhang Guobao (see more details). According to the former NEA official, China is likely to start the construction of the four pre-approved nuclear plants (seven reactors) in Fuqing, Tianwan, Yangjiang and Shidaowan.

The new projects would be an addition to 14 reactors currently in operation and 27 reactors already under construction in China. While details on the new projects are yet to come, it appears that the four projects were pre-approved prior to Fukushima and include three coastal Gen II+ as well as one Gen III (Shidaowan) projects. Combined they are likely to add 7GW of capacity to the existing 11GW from operating plants and 29GW from plants under construction.

The restart would undoubtedly be an important milestone for the development of the largest nuclear build-out program in the world. Following the restart of these projects, we are likely to see a new wave of positive headlines and potential improvement in near-term investor sentiment with the sector focused ETFs (Nuclear Energy ETF / NLR), Global X Uranium ETF / URA) and some of the more liquid industry participants (Cameco / CCJ, Uranium One / OTC:SXRZF, Paladin Energy / OTCPK:PALAF) among key beneficiaries. Yet, in our view, investor caution is still in order as substantial risks and uncertainties remain. The official Chinese announcement confirming longer term nuclear development target is yet to come. Whether the plan is set at 60GW or 80GW+ could make a material impact on investor sentiment. We are also yet to see approvals for projects other than what has been pre-approved before Fukushima.

With China accounting for over half of incremental demand in the next 10 years, the official announcement on the size and speed of new nuclear construction could go a long way in improving the investment outlook for the nuclear energy sector. Meanwhile, investors should take cues from the relative performance of the Chinese nuclear equipment players (Shanghai Electric (OTC:SIELF), Dongfang Electric and Harbin Power) as direct beneficiaries from resuming the build out. So far, judging by their share performance, Chinese equipment manufacturers don't seemed to be impressed with the Vice Chair's announcement.

Source: Bloomberg, China Daily, China Scope Financial, Reuters.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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