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Slow reactor restart process rattles energy markets as uranium piles up

Bloomberg

Uranium prices are showing little sign of recovery after sinking to their lowest levels in more than seven years amid a glut of the radioactive metal and speculation Japan will delay restarting its reactors.

Prices may average $42.82 a pound (.45 kg) this year, according to Morgan Stanley, while Bank of America Corp. is predicting $43.80.

BMO Capital Markets, which cut its price estimate by 10 percent in July, forecasts $43 a pound. Uranium has averaged $40.94 so far in 2013 after sliding to $34.50 in July, the lowest price since November 2005.

While Japanese power producers including Tokyo Electric Power Co. are seeking to restart reactors as soon as possible as the cost of other fuels escalates, operations may not resume until next year, according to Deutsche Bank AG.

That’s threatening to delay a rebound in demand for uranium, hurting miners such as Australia’s Paladin Energy Ltd. as supplies outstrip demand. There is about 60 million pounds of surplus uranium around the world, according to Cantor Fitzgerald LP.

“The process for restarts is clearly going to take some time,” said Jonathan Hinze, a senior vice president at Ux, which provides research on the nuclear industry. “Japanese utilities are unlikely to require any new fuel until 2014 at the earliest. There is a realization that the uranium demand from Japan is unlikely to dramatically change anytime soon, especially this year.”

Uranium for immediate delivery has dropped as much as 21 percent this year, extending a 17 percent decline in 2012, according to data from Ux. Prices slumped 12 percent in July, the biggest monthly loss since March 2011. They climbed as high as $152 in June 2007.

“The weakness in uranium prices is partially attributable to uncertainty surrounding the timetable for reactor restarts in Japan,” John Borshoff, the chief executive officer of Australia-based Paladin Energy, said in the company’s quarterly production report July 16.

The Nuclear Regulation Authority, which assesses the safety of reactors, began receiving applications for restarts on July 8. Tepco will seek permission to resume operations at its Kashiwazaki-Kariwa atomic plant in Niigata Prefecture as soon as possible, it said July 2.

Five reactors may be restarted this year, according to the median estimate of 13 analysts and producers compiled by Bloomberg in June. As many as 10 restarts were predicted in the survey.

“Restarts in Japan and any indication serving to confirm that most of the country’s reactors will again be operating should provide comfort to the market that the country’s record-high uranium inventories will not be dumped,” said David Sadowski, an analyst at Raymond James Ltd. who predicts prices may increase to more than $50 a pound in 2014. “This should spur other buyers, many of whom have been sitting on the sidelines.”

All but two of Japan’s 50 reactors remain idle due to the Fukushima disaster and must meet stricter safety standards set by the NRA before they can be restarted. Four utilities have applied to restart 12 idled reactors. That will probably happen early next year, Bank of America said in a July 16 report.

“The timing of restarts appears slower than our estimates,” Peta Arnott, a research analyst at Bank of America in Sydney, said in the report, predicting six reactors will resume operations in the second half of this year. This may be a “negative near-term drag on uranium spot pricing,” Arnott said.

The reactor review process is likely to take six months for each one, Deutsche Bank said in a July 15 note, citing NRA Chairman Shunichi Tanaka. An evaluation of all of Japan’s reactors may take more than three years and the first units may be restarted in February, Deutsche said.

  • Kronsteen

    The article does not take into account the end of the HEU agreement this year and the new reactors coming online in China etc. These two factors will take up the slack very quickly and the markets always look at what is happening 12 months from now, which is why uranium miner stocks are rising now.