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Will Uranium Bounce? Or Is It Still Radioactive?

May 30, 2011 1:51 PM ET
Jim Trippon profile picture
Jim Trippon's Blog
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Very shortly after Japan's Fukushima nuclear accident, GlobalProfitsAlert issued an urgent warning. We advised our readers to dump all nuclear-related stocks, especially uranium.

Of course, uranium mining stocks had already tumbled at their opening on the first trading day after the Japanese disaster. But we predicted that much worse was to come as the whole world reconsidered its plans to increase the use of nuclear power.

We were right.

Cameco Uranium Mining Chart: Pre & Post Fukushima

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Before Fukushima, a boom in nuclear energy use seemed like a sensible idea. There hadn't been a serious problem in a western-built reactor since the Three Mile Island incident in Pennsylvania. The Chernobyl disaster appeared to be unique relic of the decrepit post-Soviet industrial mess.

With oil prices jumping, coal costs rising and environmental concerns increasing, nuclear usage seemed like a no-brainer after decades of safe operation.

But now, with uranium mining shares following uranium prices to new lows, there are predictions that the heavy metal has hit a bottom. As Bloomberg said in a recent headline, "Uranium to Recover as China's Nuclear Plans Offset Fukushima".

Don't count on it.

The China Syndrome

The elephant in the room when it comes to nuclear power certainly is China. India isn't far behind. Both countries had immensely ambitious plans to build hundreds of nuclear reactors in coming years. The uranium mining industry was set for a boom.

But that was before Fukushima.

China decided to review its ambitious plans to build as many as 250 nuclear reactors shortly after the Japanese disaster. Although most of China's plants were to use much newer technology than Japan's aging reactors, a review made good sense.

Since then, more countries have decided to shut down aging reactors. And there is growing controversy worldwide about plans to build new reactors, especially if they are near major population concentrations. Even China has faced controversy about plans to build nuclear plants inland, far from large sources of water.

But, through it all, Beijing has issued confident statements, indicting that China would go ahead with its nuclear expansion. As one Chinese leader was quoted by Bloomberg:

"Of course, the overall plan won't be changed. China faces power shortages and we need to change our energy mix. To resolve these issues, we must develop nuclear."

So, will China drive a "recovery" in uranium prices and uranium mining shares? Not in the near future.

It is quite true that China now faces severe energy shortages. This summer we will be hearing a lot about electricity blackouts and brownouts overseas. Electricity shortages will increase, as China's manufacturing economy continues to expand, while generators and power grids struggle with the effects of rising coal prices and capped power prices. Peak air conditioner use in major Chinese cities will bring the situation to a head.

What does that mean? Certainly nuclear projects now under construction will given priority to continue development. New projects already "green-lighted" will probably continue also. But the newest reactor plans, especially those planned in western provinces may be shelved or delayed for a very long time.

Don't forget that China has strategic plans to make its solar and wind energy industries world leaders. Moving away from nuclear wouldn't conflict with that plan. Changing China's future energy "mix" likely means a greater move towards solar and wind energy sources. No longer will nuclear be the easy first choice for China's voracious energy needs in coming years.

I expect that the China factor will be a key in depressing uranium prices for at least five years.

Worldwide "Recovery" Really?

Don't count on other countries to jump back on the nuclear bandwagon. Resistance to new plants in Europe will be ferocious. Germany has already begun phasing out older reactors and more shutdowns seem very likely by 2020. Siemens has dropped its ambitions for nuclear industry leadership the time being.

Plans for nuclear construction in Asian countries are also in jeopardy. For instance South Korea planned to double its nuclear capacity to 64 GW (gigawatts) by 2024. But there are already anti-nuclear stirrings on the Korean peninsula and we know that nation is no stranger to violent public demonstrations.

The United States is reconsidering the wisdom of maintain its existing nuclear infrastructure near major population centers. Plants near New York City and Los Angeles have come under fierce criticism and may be shut down early. New plants could conceivably be built further from major cities, but electricity transmission becomes extremely inefficient as power lines get longer.

The other giant in the nuclear picture is India. Indian electricity demand is expected to increase twelvefold by 2030. This massive jump to 60 GW of consumption will likely involve some new nuclear capacity. But there have already been angry demonstrations in towns near planned installations. More are sure to follow and New Delhi will have to respond.

The final important card in the mix is Japan. Although Japanese authorities are supposedly still considering future nuclear installations, they are facing very harsh criticism in the wake of the Fukushima calamity. In fact, several old but undamaged plants have recently been shut down because of the newly-realized danger they may face from future earthquakes.

Japan has always been suspicious of nuclear energy since the Hiroshima and Nagasaki bombings of World War II. The word Fukushima will enter the public consciousness right alongside those horrors of the Second World War.

My bottom line? Don't bet on a so-called "recovery" in uranium. The nuclear industry isn't dead, but I would be surprised to see another boom in demand over the next two decades.

I'm looking for alternative energy sources. Clean, green, cheap and safe are the watchwords. China won't be the only country looking for a "new mix" in its energy policy. It's going to be a global shift.

Don't bother shorting uranium miners. Long term trends will likely be flat. The big target for investors will be finding the new key to feed a global energy demand that is both immense and unstoppable.

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For more information and archived issues, visit http://www.globalprofitsalert.com

Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

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