To say that the partial meltdown at Tokyo Electric Power’s Fukushima plant has put a chill on the global nuclear industry would be a vast understatement. Lead stock Cameco (CCJ) has cratered by 40%, while the ETF (NLR) has taken a 30% hickey. Is the disaster creating a buying opportunity?
To find out, I stayed up late one night to call a friend at China Guangdong Nuclear Power. While a crash safety review of all designs, both under construction and pending, is underway, there has been no slowdown in the People’s Republic’s plans whatsoever. The Soviet era designs that led to the Chernobyl disaster were discontinued many years ago. The advanced “small nuclear” and thorium designs on drawing boards in the US are far beyond Chinese capabilities.
China has far and away the world’s most ambitious nuclear program, with 100 plants on order over the next decade. The goal is to raise total generation from 10.8 gigawatts to 80 gigawatts by 2020. That will raise nuclear’s share of the country’s total power mix from 2% to 5%.
China has very little choice in the matter. Its demand for new sources of electric power is voracious. Any cut back in the nuclear program would have to be met with stepped supplies from other sources. Oil fired plants would increase the need for more expensive oil imports, which have already thrown the country into a trade deficit for the first time in years. More coal plants would lead to increased international complaints about China’s contribution to global warming. Solar is growing rapidly, but is too small to make an impact. Hydroelectric power is already tapped out after the three Gorges Dam. If the industry is unable to generate sufficient power, economic growth will slow, and political instability will rise.
This all suggests that there is a buying opportunity setting up in the nuclear space. What goes on in the US or Japan is largely irrelevant, as they are such a small factor in today’s market. This is preeminently a Chinese story. But when the sector will bottom out and resume its upward ascent is impossible to predict. This has become a highly emotional trade. My guess is that nuclear will come to the fore once again after a generalized “RISK OFF” asset class sell off takes everything else down several notches.
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