Media - Market Analyses

March 2, 2012 – Nuclear Fuel Markets Look for Clarity One Year After Fukushima

July 20, 2011 – TradeTech President Speaks at Australia Uranium Conference

The following is an In Focus piece from the March 2, 2012 issue of the Nuclear Market Review

Nuclear Fuel Markets Look for Clarity One Year After Fukushima
It’s been nearly a year since the accident at Japan’s Fukushima Daiichi nuclear station and the nuclear fuel industry has been proceeding with caution as it seeks assurances of market stability and direction. As the anniversary of the crisis in Japan approaches, we reflect on the events that occurred last year, which caused loss of lives and property damage that changed the landscape of the island nation.

On Friday, March 11, 2011, the international nuclear industry began facing one of its greatest challenges in years as a devastating earthquake and tsunami struck northeastern Japan and set off a chain of events at the Fukushima Daiichi nuclear station. The magnitude 9.0 earthquake, one of the largest oceanic earthquakes in history, designated the “2011 Tohoku-Pacific Ocean Earthquake,” was centered about 130 kilometers (80 miles) east-southeast of the Ojika Peninsula in northeastern Japan. Three of the Fukushima Daiichi station’s six reactors (all BWRs that began operating in the 1970s) were in operation when the quake hit. While the reactors shut down automatically, emergency diesel generators assisting with removal of residual heat at Units 1, 2, and 3 stopped after about an hour of operation. Oil tanks at the site were then washed away by the subsequent tsunami and operator Tokyo Electric Power Co. faced a series of problems as it tried to stabilize the reactors and spent fuel ponds at the site, in a battle that continued for several months.

The Post-Fukushima Uranium Market
In the months following the accident in Japan, the uranium market was clouded with uncertainty that continued throughout the rest of 2011. Market participants monitored recovery efforts in Japan and looked for signs that the uranium market would stabilize, while remaining hopeful that the nuclear power industry would move forward at a level that still resembled that of pre-Fukushima growth forecasts.

Early in the year the uranium market showed signs of stability as the spot price followed a strengthening trend that began in 2010, when the market was recovering from a global financial crisis that began in late 2008. TradeTech’s Weekly U3O8 Spot Price Indicator had climbed to US$73.00 per pound U3O8 on February 4. However, the spot price settled at $67.75 on March 11, when the earthquake and tsunami struck the Fukushima station.

As the crisis continued to unfold, buyers and sellers considered potential short- and long-term impacts of the events in Japan while the uranium market attempted to regain its footing. On August 26, the spot price fell to the lowest point of the year—$48.85—before rebounding to $56.25 by mid November, when traders became more active and purchased the majority of material sold that month. As 2011 came to a close, spot market demand remained primarily discretionary and TradeTech’s U3O8 Spot Price Indicator was $52.00 per pound U3O8.

Despite price volatility affecting the spot uranium market throughout much of last year, higher spot volume prevailed to set a new record of 45.8 million pounds U3O8, surpassing spot transaction volume of 42.8 million pounds U3O8 in 2010, the highest level recorded in two decades. Fourth quarter sales alone totaled more than 9 million pounds U3O8, as traders, uranium producers, and financial entities attempted to place material before year end. Given this year-end push to clear the market, spot uranium supply remained extremely thin at the end of 2011, a trend that has continued into the first quarter of 2012.

TradeTech’s U3O8 spot price climbed slightly in January only to drift down again due to a lack of interest by both buyers and sellers—spot volume totaled only 1.8 million pounds U3O8 and the spot price closed the month at $52.25. February brought similar trading activity, with even fewer spot transactions completed, which totaled a mere 850,000 pounds—the lowest spot volume recorded in nearly two years (since March 2009). Today the spot price remains at $51.80 per pound U3O8, which is the result of a spot market that languished in the post-Fukushima period and has not been able to gain momentum so far this year, primarily due to mismatches between buyers and sellers seeking alternate delivery locations or materials forms.

In the pre-Fukushima period, buying interest, including purchases by the financial community, were expected to continue. However, following the Fukushima crisis, this buying activity evaporated and was replaced with selling pressure.

It is important to note that the spot market was not alone in being affected, as TradeTech’s Mid- and Long-Term U3O8 Price Indicators have slipped marginally due to recent spot trends. Undersupply or oversupply in the spot market will lead to a direct impact on the mid-term prices, which is linked to deliveries one to three years forward.

Uranium Production Challenges
The impact of the Fukushima crisis on uranium production, from certain existing and new projects, will likely involve production delays as some producers may be challenged to secure project funding and to determine how changes to future demand will affect future production and sales efforts.

This has already been witnessed, with AREVA’s uranium Trekkopje project in Namibia as the largest project to be delayed, while news of other firm project delays have yet to be announced. However, the reality is that significant new production is still required, and while long-term demand remains relatively robust, many projects appear to be moving forward in the near term.

The Post-Fukushima Nuclear Power Outlook
Changes to government and/or public opinion have occurred in some nations as a result of the Fukushima crisis. One of the most severe reactions was seen in Germany, where Chancellor Angela Merkel’s coalition government moved to reverse its nuclear policy and shut down all nuclear plants, which provide nearly 25 percent of Germany’s electricity supply, by 2022. Merkel’s plan received the support of the Cabinet in June and that of the German parliament in July. While phasing out nuclear power in Germany has been on the agenda for several years, its 17 operating reactors had previously been expected to serve as a “bridge” to renewable energy, with an average operating life of 12 years per unit.

In a less dramatic decision, lawmakers in Switzerland approved a proposal in June last year to phase out nuclear power, following a May 25 decision by the Cabinet to close the country’s five nuclear plants amid safety concerns and declining public support. However, none of the plants will be shut down prematurely. Instead, they will be closed in the 2019-2034 period, after each reaches an average operating life of 50 years. While this represents a more measured approach to a nuclear departure, it is a complete policy reversal, as prior to the Fukushima accident the Swiss government had been working toward site selection for three new nuclear plants, which were proposed as future replacements for ageing reactors.

And in Italy, plans to resurrect the country’s nuclear power program were halted due to safety concerns raised by the Fukushima accident. The government initially decided to temporarily freeze plans for a nuclear power program restart. However, on June 1, 2011, Italy’s highest appeals court approved a referendum on nuclear power in which an overwhelming majority of Italian citizens voted against construction of nuclear plants in the country. As a result, Italy will abandon nuclear power for the foreseeable future.

However, not all decisions on new nuclear build have been negative. In fact, many nations are maintaining nuclear as part of their energy portfolios and still others are moving ahead with nuclear power expansion plans. While Finland is completing its fifth reactor (Olkiluoto 3), plans are under review for the nation’s sixth and seventh reactors. The UK has selected eight sites suitable for new power stations by 2025, all of which are adjacent to existing nuclear sites. France, the nuclear powerhouse, has debated its reliance on nuclear power and the government has maintained its position that nuclear power will remain.

The USA recently showed its support for nuclear with the February 9 US Nuclear Regulatory Commission (NRC) approval of a Combined Construction and Operating License (COL) for Plant Vogtle Units 3 and 4, the first such license ever approved for a US nuclear plant. Southern Co.’s new reactors at the existing Plant Vogtle site in Georgia are scheduled for completion in 2016 and 2017, and will be the first new US nuclear plants in 30 years.

In addition, it is important to note that nuclear power growth within the key regions of China, India, and South Korea continue to form the foundation of a nuclear renaissance that will likely proceed at a more measured pace.

Today, Japan has only two of its 54 commercial reactors in operation, as most are shut down for scheduled maintenance and/or safety reviews. It remains to be seen whether the country will move toward a measured restart of these units or bow to public and local government pressure to keep some plants out of service.

The crisis at Fukushima has been an undeniable setback for the nuclear industry. Its effects on long-term uranium demand remain uncertain, but it is important to realize there is potential for the nuclear fuel markets to be back on track within the next decade.

Nonetheless, the impact on market prices has been considerable, with TradeTech’s current uranium spot price resting about $30 below the level forecast in the pre-Fukushima days. This lower price level has impacted uranium production plans and could ultimately bring additional project deferrals. To this end, the current price stagnation poses additional risks as new production remains vital for the nuclear industry.

Editor’s Note: An in-depth analysis of the uranium market one year after the Fukushima accident will be featured in TradeTech’s Uranium Market Study, First Quarter 2012 edition. [top]

TradeTech President Speaks at Australia Uranium Conference
On July 20, TradeTech President Treva Klingbiel spoke at the Australian Uranium Conference. Her presentation, entitled Adapting to a Dyanmic Market, focused on market developments affecting price, including supply/demand impact of the Fukushima accident and the near-term uranium price forecast. [top]