As an island nation, Japan is in the unfortunate position of needing to import over 80% of its fuel. Since reliable electricity is a prerequisite of modern society, that's a big and potentially expensive problem. The rise in power prices after the country swore off nuclear power in the wake of the Fukushima nuclear disaster is proof of this. It's also why the country is getting closer to turning its nuclear plants back on and why you might want to reexamine the uranium market.
Knee jerk
Although no one died from radiation poisoning because of the Fukushima nuclear meltdown, it did result in the evacuation of around 300,000 residents living near the plant. That said, it's important to remember that this was a bigger event, involving a seaborne magnitude nine earthquake that caused a tsunami. And it was this confluence of events that led to the meltdown.
(Source: Steve Herman, via Wikimedia Commons)
In other words, this wasn't a second Chernobyl, which was caused by an unexpected power surge. The Japanese power plant, which was constructed in the late 1960s and 1970s, wasn't built to withstand what you could easily argue was a "perfect storm" of catastrophic events. That said, watching the country's largest nuclear facility melt down had an understandably negative impact on nuclear power's image in Japan, a nation with a long and unfortunate nuclear history. The government shut all of the country's nuclear facilities.
On one level it made sense to reevaluate the other plants after such a disaster. But that was three years ago, and nuclear power is still absent from the mix in Japan. Nuclear power had accounted for roughly 30% of Japan's power, too large a slice of the pie to remove without a painful impact. For example, power generation costs in Japan are up more than 50% from their levels in 2012.
The country's trade deficit, the amount it imports versus the amount it exports, expanded 70%, largely because of increased energy imports to make up for the shuttered nuclear plants. That's why businesses are lobbying for a restart, and the government is listening.
Broader reach
It wasn't just Japan that felt the pinch, however. In a recent investor presentation, uranium miner Cameco (CCJ 4.08%) provides a graph of uranium prices that starts just before the Fukushima disaster. Uranium, the fuel used in most nuclear reactors, was trading in the $70 a pound range on the spot market in early 2011. It has since fallen below $40 a pound. The company's earnings fell around 40% between 2010 and 2013.
Looking forward, however, Timothy Gitzel, Cameco's CEO, highlighted the progress being made in Japan during the company's second quarter conference call: "In total, Japan's new regulator has received restart applications from nine utilities for 19 reactors. Sendai units 1 and 2 operated by Kyushu Electric Power have successfully become the first to pass the NRA safety inspection."
Those two reactors have now been granted permission by Japan's nuclear regulatory arm to make safety changes so they can eventually reopen.
That's great news for the uranium market since it suggests the Japan will be a nuclear nation again sooner rather than later. But don't expect a fast-paced nuclear rebound in Japan. According to Gitzel, "While the initial restarts will be positive, we expect it will take some time for a significant number of reactors to resume operations and begin to consume the inventory built up over the past several years."
So even as Japan gets set to go nuclear again, the impact won't be immediate for the country or for the uranium market. That said, a slow rebound may actually be better for investors looking at the uranium space. Cameco's shares are still down over 50% since the disaster disrupted the uranium market. With Japan looking to reopen its facilities, and nations like China and India continuing to build out their own fleets, the future is starting to look brighter. That makes Cameco's low share price potentially enticing for long-term investors, and you likely still have time to do a deep dive before buying in.
