Moscow: The uranium industry’s worst year is about to collide with a nuclear construction programme in India and China that rivals the ones undertaken during the oil crisis of the 1970s.
The result is likely to be a 58% rebound in uranium to $90 (Rs3,870) a pound from $57 now, according to Goldman Sachs JBWere Pty. Ltd and the Rio Tinto group, the third biggest mining company. Uranium plunged 57% in the past year as an earthquake damaged a Japanese plant that is the world’s largest and faults shut down reactors in the UK and Germany.
Plans for India and China to end electricity shortages will ripple from Canada to the Australian outback and the flatlands of Kazakhstan, the primary sources of uranium. India will start three reactors this year, with another six due next year in India, China, Russia, Canada and Japan. Uranium demand worldwide will rise as fast as oil this year, or 0.8%, Deutsche Bank AG forecasts.
Scarce commodity: The Hamaoka nuclear power station in Japan. Uranium plunged 57% in the past year as an earthquake damaged another plant in Japan and faults shut down reactors in the UK and Germany. (Photo: Robert Gilhooly/Bloomberg)
“The first wave of growth is going to come from the emerging economies,” said John Wong, fund manager with CQS UK Llp. in London, which has $10 billion under management including $150 million of uranium investments. “People are starting to look at coal, gas, oil and seeing the energy prices go up, they wonder about uranium.”
The year long decline in uranium contrasts with record prices for oil and coal as Asian energy demand expands and concern mounts that emissions will cause global warming to worsen. The world needs to build 32 new nuclear plants each year as part of measures to cut emissions in half by 2050, the Paris-based International Energy Agency says.
Because malfunctions shut reactors in Japan, the UK and Germany, nuclear power production and uranium use dropped 2% in 2007, only the third time consumption has fallen since the 1970s, according to data compiled by BP Plc., Europe’s second largest oil company by market value. Prices are so low that some uranium mines are close to being unprofitable, says Merrill Lynch and Co. Inc., the third-largest US securities firm.
“If you look at what is necessary to sustain increased production, to make the kind of projects that everyone is talking about fly, prices better not get much lower or those projects are going to fall over,” says Preston Chiaro, chief executive of Rio Tinto’s energy unit.
“I don’t think that spot price is indicative of what prices will look like through the course of the year.”
In India, Nuclear Power Corp. of India Ltd’s 220MW Kaiga plant in Karnataka and another at Rawatbhata in Rajasthan are due to come online this year. China started two units in 2007 and will bring on three more through 2011, says the World Nuclear Association, or WNA. Iran plans to begin generation this year at its 950MW Bushehr reactor, which is at the centre of the nation’s conflict with the West.
“China is just on the verge of a second rapid phase of expansion,” says Ian Hore-Lacy, director of public communications for the WNA in London. “Each year China seems to raise their sights further.”
To be sure, safety concerns remain the biggest risk to nuclear construction and uranium’s revival. Proposed reactors were cancelled in the 1970s because of environmental protests, while accidents at Three Mile Island in Pennsylvania in 1979 and Chernobyl, Ukraine, in 1986 further eroded support.
In Japan, new projects face delays as utilities improve earthquake resistance to restore confidence after the closure of Tokyo Electric Power Co. Inc.’s Kashiwazaki Kariwa and revelations that companies falsified safety records.
“It is worth remembering that this is an industry that can be brought to its knees overnight by one major mishap or one well-executed terrorist action,” Paul Hannon, an analyst at London-based commodities research company VM Group in London wrote in a report.
Uranium demand was 66,500 metric tonnes last year, according to data from Denver-based consultant TradeTech Llp.
Consumption may jump 55% to 102,000 tonnes by 2020, forecasts Macquarie Group Ltd, Australia’s biggest securities firm. Demand is set to increase as nuclear energy gains converts.
Christopher Donville in Vancouver, Alistair Holloway in London, Rebecca Keenan in Perth, Gavin Evans in Wellington, Archana Chaudhary in Mumbai and Megumi Yamanaka in Tokyo contributed to this story.