Thursday, June 23, 2011

Uranium Market Outlook from Royal Bank of Canada (and an Analyst I've never heard of says "Nowhere to Go but Up-Stocks to Follow") CCJ; PDN.tsx,asx; URA; BHP

...Words like "uranium", "rare earths", etc. seem to be magic to
 those unsuspecting who are often fleeced...
Gerald M. Loeb
The Battle for Investment Survival
Simon & Schuster, 1935

URA is the GlobalX Uranium ETF, rolled out last November.
CME's GLOBEX has some  U308 swap futures, you probably don't want to take delivery.
From RBC via Scribd: 
Second Quarter 2011
 We foresee uranium demand growing by an average of 4% per year during the next 20years, but weighted to the 2018-2025 time frame. The Japanese nuclear disaster has changed our near-term outlook for uranium demand. In the aftermath of the nuclear crisis,many countries commented on the future of the nuclear industry – some bearish, but most unchanged. Both Germany and Switzerland aggressively moved away from nuclear power while China, South Korea, Russia, and India either slowed or maintained the current nuclear reactor development plans, with a focus on safety.In total, between 2011 and2020 our new demand forecast is approximately 125 million pounds lower than ourprevious forecast published on March 9, 2011.

Post the Fukushima nuclear disaster, China has planned for nuclear’s contribution in 2020to be 80GW, the low end of our previous 80GW to 112GW range, which is still very large growth and is likely to move back up in the next five-year plan.
In  our opinion, with growing electricity needs and an overwhelming  number of pollution-generating coal-fired power plants, we think China will absolutely need to return to an  intense nuclear build program. 

We have made changes to our supply forecasts. We think lower forecast uranium pricesand permitting delays (in jurisdictions such as Europe and Australia) will delay theconstruction of new mines, thereby reducing the available supply.In total, our supplyforecast for 2011 to 2020 has been reduced by approximately 49 million pounds....MUCH MORE (32 page report)
HT: Next Big Future

From Zurich's Institute of Particle Physics:

The End of Cheap Uranium
(13 page PDF)
HT: Infectious Greed

And from Mineweb:
While uranium prices fell after the Japanese earthquake and tsunami, Versant Partners Analyst Rob Chang says in the long term, prices must rise due to a supply shortfall and the economic necessity of using nuclear power. Energy Report interview

The Energy Report: How did investors initially react to the earthquake and tsunami in Japan, and how have attitudes changed since?

Rob Chang: Many hit the sell button on uranium after the disaster. The uranium spot price prior to Fukushima was around $66.50/lb. In the three days following, it declined 30%, to as low as $47/lb. However, it didn't stay that low as it bounced back by the end of the week, finishing only about 9% lower, at $60/lb., which was a good sign. It later drifted to a low of about $55.25/lb. in early May and is now trading at $55.00/lb.-showing some strength.

Switching to the long-term price, which better indicates how utilities see things, it was around $73/lb. prior to the disaster. After the first post-Fukushima price update, it only declined $1/lb., a fantastic sign that the utilities and the producers didn't see much of a long-term impact. It has declined a little since then-and is currently down 7%, to $68/lb.

Uranium equities, on the other hand, declined about 30% following Fukushima and, despite attempts at rallying, their prices have drifted lower. It appears that investors have shifted their focus away from the fundamentals, which drove the market for the previous nine months, and now employ more of a "wait and see" approach while countries around the world re-evaluate their nuclear programs. It is interesting to note, however, that despite the 30% drop from the peak before the tsunami, uranium equities are still trading higher than at this time last year. Things are still positive from that perspective.

TER: Very interesting point. Germany has announced a plan to scrap its nuclear power programs by the year 2022; Chancellor Merkel says this is just the beginning of a fundamental shift in policy. What is your take?

RC: I am skeptical. A 10-year time frame to phase out 25% of Germany's power generation seems aggressive, and Merkel's plans lack clarity. They say the power will be replaced by gas and coal plants in the short term, and then by renewable sources. But there are a lot of question marks. For example, renewable sources currently make up 17% of Germany's power generation; they are expecting that to double to 35% by 2022. That's pretty aggressive.

Economically, the cost would be ridiculous; just to phase out 25% of the world's fourth-largest economy's power generation and replace it with gas and coal, and then buy renewables, would require a vast amount of money in the form of taxes and/or tariffs. That is hard while we are still in a global recession or downturn. At the same time, even if they were able to find the money, where are they going to build new power plants? No one will want them in their backyards. An additional layer of regulation and political hand-holding would be needed; to attempt to do all this in 10 years is optimistic at best....MORE