Nuclear Energy Returning To Japan Forces Uranium To Step Up

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Includes: NLR, NUCL, URA
by: Jeff Opdyke

Summary

Japan has begun restarting the country's closed plants under new safety regulations.

Along with Japan, nuclear plants are opening all over the world, particularly in developing economies, but also in the West.

Current uranium mines are already incapable of meeting demand. As new plants continue to come on-line, prices for the fuel must rise.

Uranium should be a core holding in every portfolio, simply because of the bullish uptrend it's approaching.

A funny thing happened on the way to a nuclear-free world - Japan realized what a bad idea that was.

You will probably recall that in the wake of the earthquake/tsunami/Fukushima nuclear disaster, Japan shuttered its 50 nuclear power plants, which were supplying between 30% and 40% of the island nation's electricity needs. For the first time in more than three decades, Japan was totally dependent on non-nuclear fuels. The country became a poster child for a nuclear-free future, and countries including Germany, Italy, Sweden and others followed suit, announcing that they, too, would phase out nuclear energy.

The nuclear renaissance was dead - or so the mass media liked to report.

Only, it wasn't dead.

Now, Japan is back in the nuclear energy game, and that can only mean one thing: now is the moment to grab exposure to the deeply undervalued uranium market.

Reports of the death of the nuclear industry were greatly exaggerated in the aftermath of Fukushima.

Reactionaries in the environmental community, in the consumer industry, at various levels of government and in the media - especially the financial media - immediately claimed that Fukushima sounded the death knell for nuclear. They were wrong then. They're wrong now.

And now, Japan's energy industry and its government are living proof of that. They've begun restarting the country's closed plants. They've come to the realization that a nation with no energy resources, and which is dependent on oil and gas imports, puts itself at economic risk to a price or supply shock. Nuclear is the answer.

Japan restarting its fleet of nuclear plants will add to demand for uranium. That increased demand comes at a time when new nuclear plants are opening all over the world, particularly in developing economies, but also in the West. The U.S. has plans for 13 new nuclear reactors, while Canada, France and the U.K. are also increasing their nuclear power capacity.

And here's the rub: The uranium mining industry today is already incapable of meeting the annual demand from the world's existing nuclear plants. As new plants come on-line, that additional demand will put great strains on the mining industry... and prices for the fuel must rise as a result.

Nuclear plants use a prescribed and measured amount of uranium annually. The roughly 435 plants that exist today live off of 86,000 tons of uranium every year. The industry, however, produces just 75,000 tons annually. Making up the shortfall are above-ground supplies that exist in large part because Japan stopped using uranium for three years.

Now, that supply will begin to quickly dwindle. And as 70 new plants come on-line in the next few years, the nuclear industry will find that uranium is a dear source indeed. Its price will reflect that wide chasm between supply and demand. After all, no company is going to build a multi-billion nuclear plant and then let the thing collect spider webs because of a shortage of supply.

Nuclear plant operators will bid up prices to a level that prompts uranium miners to go out and find new supplies.

And that price is in the range of $70 a pound - roughly double today's spot price.

A Supply and Demand Imbalance

You want to own exposure to uranium specifically because the spot price will - absolutely must - rise. The laws of supply and demand dictate it. Nuclear plants in operation and now under construction have no other option but to consume uranium... but the miners will need $70 a pound - at least - to meet all the demand.

So, uranium should be a core holding in every portfolio, simply because of the bullish uptrend it's approaching.

You can get in on a slower-growing alternative by owning shares of Uranium Participation Corp. (OTCPK:URPTF, TSX: U). The company owns a stockpile of several million pounds of uranium, fully expecting - as I and the entire uranium industry do - that prices are headed much, much higher. Uranium Participation acts a bit like an exchange traded fund (ETF), in that the shares rise and fall alongside the price of uranium. It's a good long-term holding for those who see that uranium is quickly approaching a classic supply-demand squeeze that will have uranium owners benefiting greatly.

Until next time, stay Sovereign...

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.