The Canadian investment bank is predicting a slow but steady re-starting of idled reactors as idled plants come to grips with what is a fairly stringent new regulatory environment. Excluding Japan's three reactors that are more than 40 years old and a few more that sit on known fault lines, RBC sees the fleet back to generating 80% of pre-Fukushima levels by 2018.
Canadian brokerage house Toll Cross notes the idled fleet once generated 30% of the nation's power and used up 18-20 million pounds of uranium every year. Since the fleet was mothballed, Japan's imports of oil, LNG, coal and LPG have risen from 1.4tr yen per month in March 2010 to 2.2tr yen per month in March 2013. That's US$8.4bn per month, or more than US$100bn a year. Recommencing nuclear power would cost only US$5bn.
The broker pints out that Japan may well boast a US$6tr economy, but it cannot afford this kind of hit to its trade balance. The broker reasons that Abenomics just can't work if the devalued yen is offset by such a drastic increase in the cost of energy imports. Thus, expect reactor restarts sooner than one might expect, says Toll Cross.
Prices have flip flopped a dollar above and below US$40/lb for months now and RBC sees this level as being a reasonable support. But once those Japanese reactors start coming back on line, the absence of highly enriched uranium from the US and Russia's now expired deal will surely be felt. RBC expects prices will start to track slowly higher towards the end of this year.
The bottom line is that at $40 for spot or even $57 for term prices for uranium is too cheap to entice capital to build the required supply. The issue in Japan regarding the reactors being off and LNG and coal making up the difference is an argument I have been making for a while. The Japanese economy simply can't withstand the price of non-nuclear energy. The government there realizes this fact and that is why I expect announcements of restarts sooner rather than later. This will reverse one of the main downward forces on the market. Recall that not only did the Japanese shutdown their reactors after Fukishima, they dumped all their uranium fuel on the market at the same time to raise cash (I heard a total swing of 30 million pounds in a 180 million pound per year market). They will now have to reverse this process and this could lead to a major change in sentiment. Patience will be required but this is a no brainer in my view over the next couple of years.
Disclosure: I am long URA, EFRFF.PK.