Uranium Update

This story features PALADIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: PDN

By Greg Peel

In this week's regular uranium report (Uranium: A New Dynamic) I noted that pre-quake trade had the uranium spot price rising for the first week in many, by US$1.00 to US$67.75/lb on industry consultant TradeTech's weekly indication. It's all academic now of course, given the situation in Japan has thrown the global uranium industry into turmoil.

Fellow consultant UxC published its weekly spot price indicator on the Monday, and it has fallen 10% to US$60.00/lb. Given only a handful of transactions occur each week in the market, it is not considered helpful to mark prices any more regular than weekly. But the expectation is that by week's close tonight that price will have fallen further.

Japan's now disabled reactors (14) represent 25% of the country's nuclear capacity, and 3% of global uranium demand. In isolation, this figure should not be overly harmful to medium-term uranium prices, and nuclear aspirations in China, India, South Korea and Japan represent 75% of expected global growth over the next decade, Deutsche Bank notes. But the disaster, which is still playing out, has had a big psychological impact.

The Fukushima plant may be safely shut down, and nuclear lobbyists can point to the age of the plant, the fact it was set for decommissioning anyway, and its (curious?) location on the Ring of Fire as reasons why this isolated disaster should not be reason to abandon all nuclear power generation across the globe. Perhaps there needs to be a pause to reassess safety, but new plants are far more technologically advanced and thus safer than old ones. And they don't have to be built on major fault lines.

But what of the political fallout? Will governments feel safe to press on with nuclear ambitions if the Fukushima disaster turns the electorate solidly against the idea? One is reminded that the Three Mile Island (1979) and Chernobyl (1986) disasters set the global nuclear industry back twenty years.

Germany and Switzerland have already contemplated a reassessment of reliance on nuclear power, and the elephant in the nuclear room – China – has currently put a moratorium on new reactor approvals at least until Fukushima plays out. Citi analysts were forecasting 333GW of global nuclear capacity by 2020 but now suggest 16% of this figure is at risk through existing plant closures, cancellation of projects and non-renewal of licences for old plants.

Deutsche now suggests a 9mlb uranium surplus in 2011 and believes the price can fall towards US$50/lb, but doesn't see US$40 being tested. At these levels China should come in to stockpile, the analysts suggest. Clearly Deutsche is working on the assumption a Japanese disaster will not completely kill off Chinese nuclear plans.

And that belief is borne out in the broker's upgrade of Paladin Energy ((PDN)) this week to Hold from Sell, based on the share price plunge. Deutsche already had a Buy on ERA ((ERA)).

The fortunes of uranium stocks have fallen, risen and fallen with every piece of new news from Japan this week. It is still too early to know where this all may end.

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