Japan's new Basic Energy Plan announced Feb 25 gave a boost to uranium stocks this past week. The plan designates nuclear energy as an important long-term electricity source and states that Japan will push to restart nuclear reactors despite strong public opposition. Hiroko Tabuchi of the The New York Times reported, "the country's new energy plan calls nuclear power an important 'baseload' electricity source — one that can produce energy at a constant rate and at a lower cost than alternatives like solar or wind power."
Overall, the plan is a huge boost of confidence for nuclear energy. While the plan indicates that Japan is seeking to reduce reliance on nuclear energy, the plan also states that Japan should restart nuclear reactors that meet their new safety regulations. Japan currently has 48 commercial nuclear reactors offline, of which 17 are being reviewed for potential restart. Prior to the 2011 Fukushima disaster, nuclear energy accounted for roughly 30% of Japan's electricity, and Japan ranked behind only the United States and France in nuclear electricity production. While it is not likely that Japanese nuclear consumption will reach pre-Fukushima levels any time soon, the Basic Energy Plan solidifies nuclear energy as a vital part of Japan's energy policy.
Stocks respond positively
The news of the draft energy plan sent shares of Cameco (CCJ -3.15%) higher by over 10% last week, and junior miner Denison Mines (DNN -2.94%) gained nearly 20% for the week. The Global X Uranium ETF (URA -1.55%), which is a basket of both uranium majors and developer/explorers also rose more than 10% for the week. Shares of uranium stocks have been beaten down since the 2011 Fukushima disaster, and it appears that investors will push these stocks higher on any positive news. It is interesting to note that the plan did not provide specifics regarding how many reactors may be restarted or what percentage of power Japan hopes to generate from nuclear energy. Negative news on this front such as delays in restarting reactors or shift in policy could send uranium shares lower, though it seems more and more certain that some of the reactors will be restarted this year.
Long-term fundamentals remain intact
Even while countries such as Germany drastically reduce their use of nuclear power, other countries such as China and India have plans to sharply increase nuclear energy consumption. According to the World Nuclear Association, as of January there are 70 reactors under construction worldwide and another 173 being planned. Regardless of how many Japanese reactors come back online, overall demand for nuclear energy is expected to grow at about 3% per year over the next decade. With the spot price of uranium seemingly having found a bottom in the mid $30's, uranium stocks appear poised to regain some of the losses that they have suffered since 2011.
Japan's Basic Energy Plan has given uranium investors something to cheer despite the Japanese public remaining highly opposed to the restart of nuclear reactors. With Japan being one of the world's top nuclear electricity producers prior to the Fukushima disaster, this sign of confidence from the Japanese government has boosted uranium stocks. While the short term seems less certain, longer-term uranium fundamentals remain intact as many developing countries turn to nuclear energy as a larger source of their power even while other countries seek to move away from nuclear energy.