Guest Post: Massacre In Uranium: When The Blood Is Running In The Streets, You Buy!

Tyler Durden's picture

Submitted by  Smart Money Europe

Massacre in Uranium: when the blood is running in the streets, you buy!

Japan is living through some apocalyptic days. An historic earthquake and following tsunami put large parts of the country in ruins, and a nuclear disaster still looms.

Several reactors on the nuclear plant of Fukushima are damaged. Official spokesmen already talked about partial meltdowns. Radiation levels on the site are reaching life-threatening heights and tens of thousands of citizens have been evacuated from the area.

A new Chernobyl is in the making!

All of a sudden nuclear energy is put into question worldwide. Chancellor of Germany, Angela Merkel, pledged a three-month pause in her government's plan to extend the running times of Germany's nuclear power plants. 

Switzerland has suspended the approvals process for three new nuclear power stations so safety standards can be revisited. Belgium is thinking about a import tax on uranium.

On a European level, Energy Commissioner Oettinger called for the introduction of safety "stress tests" at nuclear power plants in Europe, which one could compare to the stress tests for European banks – which also failed.

But not only in Europe, also elsewhere in the world, specifically in the US, nuclear energy is again being questioned. It looks like several leaders want to – in the heat of the moment – erase nuclear from the national energy agenda’s.

With all these sort of ‘gloom & doom’ news items on nuclear energy, it shouldn’t come as a surprise that uranium, the fuel of a nuclear power plant, is in the spotlights. Many pundits all of a sudden start questioning the bright outlook for uranium and fearing a collapse in demand for the commodity.

Well, we think that, despite the catastrophe in Japan, the reality is far different.

The most recent figures of the World Nuclear Association point to a least 150 new nuclear power plants till 2030, with Asia being the big driver for the future of nuclear energy expansion.

China has 13 nuclear plants, with 10.2 GW power capacity, and is currently building 25 new reactors. In 2020, China wants 75 GW installed! India has similar ambitions: the current 22 nuclear power plants are producing 4 GW, which they want to raise to 60 GW by 2030.

The reaction from China on Japan’s nuclear horror-scene are unequivocal.  China has temporarily suspended approval of nuclear power projects, including those in the preliminary stages of development. But Zhang Lijun, China’s vice minister for environmental protection, already told reporters that there would be no change in China’s nuclear plans. “Some lessons we learn from Japan will be considered in the making of China’s nuclear power plans,” he said. “But China will not change its determination and plan for developing nuclear power.”

In India, there is little bit more cautious, but given the economic policy objectives, the country has no other options on the table.
The emerging markets simply cannot afford to store away their nuclear future.

A little smash in the demand from the West with a gigantic demand from the Asian emerging markets… all in all one would expect little impact on the price of uranium.

The spot uranium price fell nearly 10% to US$60 a pound, according to Ux Consulting, which is in line with our expectations : a correction but no capitulation.

But while the damage in the uranium market remains rather limited, there was tremendous havoc in the uranium sector. The shares of different producers and exploration companies lost a quarter to half of their market caps, an unprecedented massacre!

You don’t have to be a rocket scientist to know that these kind of extreme results are far from any realistic scenario. It’s rather investors in a panic mode, dumping everything that has something to do with nuclear energy. You can almost smell the fear in the air.

When the blood is running in the streets, we as contrarians buy, especially our convictions!

Sure, we certainly take into account a period of high volatility in the sector, but a halving of some values in a few days? We are all too happy with these positive set of fundamentals for uranium: those cheap shopping days are back in town.