A significant base may be forming in uranium stocks -- seen in the Global X Uranium ETF (URA) -- as Japan’s troubled nuclear energy industry passed its first major vote since the Fukushima tragedy. Many of the stocks that make up this ETF are down more than 40% such as Uranium Resources (URRE) and Uranium Energy Corporation (UEC). But positive news is beginning to reemerge after three months of naysaying. Fukushima is proving nuclear is here to stay.
In the northern prefecture of Aomori in Japan, citizens gave a resounding vote of confidence to a conservative pro- nuclear governor. He won a third term, turning back a challenger who wanted to freeze all existing plans for the building of new nuclear facilities.
Aomori is not far from Fukushima, thus making it an ideal place to test the issue of which way Japan wanted to go with nuclear power. It is interesting to note that the opponents still seek the negative interpretation of a positive development. They still live in the forty year old past of outmoded plants and don't acknowledge the new generation of safer, more compact reactors that are being built around the globe.
The Japanese Citizenry are well aware of why they voted to go ahead with development of nuclear power generation. Those who would take the “Merkel” approach, cutting off the nuclear nose to spite the German atomic face, are naive to the realities of industrial generation in our modern society. That thinking is limited to the thought that the people who voted in favor of nuclear power based their decisions on strictly economic motivations.
It is true that Aomori is one of the poorest areas with an unemployment rate among the highest in Japan. Nuclear energy provides almost 15% of tax revenue during the current fiscal year. Moreover, they receive generous subsidies from Tokyo.
The Japanese have a saying, “Fukatsu No Seishin -- We will never give up.” One wonders when the nuclear critics will awaken to the new atomic realities.
A new day is dawning on the economical generation of electricity. The superiority of nuclear power [NLR] over other sources such as solar, wind, and coal are becoming increasingly apparent. The march towards safer new nuclear construction continues apace as the realization is that a new and improved nuclear is here to stay.
If any nation had justification for turning their backs on nuclear policies, it was Japan. This recent vote may serve to inspire a watching world. Remember that Aomori is the site of 4 of the 14 planned reactors to be built in Japan. In addition, the prefecture also has the nation’s only nuclear reprocessing plant. What does this mean to holders of uranium mining stocks? We know that there is a global shortage in the supply/demand equation of available uranium ore, especially in the United States as the Russian HEU agreement nears completion in 2013. This shortfall may increase in the immediate future, benefitting patient holders of uranium mining stocks that are near production in the United States.
Many small miners that are near term low cost and low capital producers have already bottomed and have reversed their downtrends. As the HEU agreement nears expiration in 2013, these junior uranium miners will be mining ore at the right time and in the right place.
Many uranium miners are not violating Fukushima lows. Two weeks ago we witnessed the first major accumulation of uranium stocks since March as the Department of Energy sold a large portion privately instead of dumping it on the open market. This is beneficial for the uranium spot price as the market was preparing for these auctions over the next few months. These auctions would cause the spot price to decrease significantly.
We have been witnessing a major negative divergence between price and momentum indicating a potential reversal from this five month downturn in this brutally beaten down sector. The uranium sector has usually bottomed in late June or early July. Last year, we saw a record run with these stocks as countries began to stockpile uranium ore. I would not be surprised to see something similar during the second half of 2011 when uranium once again resumes its major secular uptrend and truly reflects the long term supply shortfall.
Unlike Japan, Germany (EWG) is taking the wrong road. It's a decision that is political and irrationally motivated in response to the Green Party. It makes me wonder what some politicians will do to get elected.
The leaders of German Industry have written an open letter stating that halting the country's nuclear energy with such “unprecedented haste” gives them increasing worry.
Germany has been the crown industrial jewel of Europe, maintaining a profitable economy in the heartland of an otherwise deficit ridden Eurozone. The Chief Executive of Daimler Motors voiced fear about Germany’s abrupt about face in nuclear policy.
The huge power requirements of Germany’s heavy manufacturing companies, which are the flower of the European economy, will now be dependent on power sources from France and Russia. Could this be a potential black swan?
Germany’s electricity prices, which have more than doubled in the last ten years, now become a sensitive issue for German Industry. This nuclear transition is forcing an increased reliance not only on coal, but also on nuclear energy from France and natural gas from Russia.
This is no way to run a modern industrial nation. German Chancellor Angela Merkel is running scared and scuttling Europe’s most advanced modern industrial machine.
(It is important that readers be aware that the anti-nuclear movement in Germany was strong long before Fukushima. The Japanese tragedy provided the ammunition needed by the anti-industrial left. The nuclear plants were growing old in need of revamping.)
Chancellor Schroder, who preceded Merkel, was sympathetic to the Green Party and committed to a nuclear phase-out plan by 2022. Merkel’s response in late 2010 was to attempt to extend the nuclear exit by 12 additional years.
Many riots and demonstrations occurred in response to Merkel’s move. She was under pressure to give in to Socialist demands when Fukushima provided the immediate excuse to reverse policy and to close all of Germany’s Nuclear Plants. We see that Germany’s decision to forsake their nuclear reactors was a long time coming. This is despite Merkel’s statement -- which was misleading -- when she said, “After what was an unimaginable disaster at Fukushima, we had to reconsider the role of nuclear energy.” She announced the decision to close all the reactors by 2022 at a news conference in the presence of several of her cabinet ministers.
This is a sharp policy reversal that will make Germany the first major modern industrial nation to abandon nuclear power. Merkel’s move is in contrast with the US, China, India, Russia, and many others who are continuing full speed ahead with safe and up to date nuclear power plants.
There are currently 62 modern and efficient power plants being built all over the world including 27 in China, 5 in India, 11 in Russia, and even 2 in Japan. In fact, uranium is fast approaching a supply-demand deficit and a possible shortage in uranium ore.
There are 443 operating reactors, not including new plants coming online, which need over 180 million pounds of uranium annually. The world produces only 130 million pounds per year. Already there is a shortfall of 50 million pounds which is being filled until 2013 by the Russian Highly Enriched Uranium Agreement. The Russians have made it clear that they will not renew this agreement after 2013, as they will need the fuel for their own needs.
Meanwhile, the Nuclear Regulatory Commission which oversees nuclear power in the US has been conducting special investigations into nuclear reactors. The Chairman of the NRC has expressed confidence in the safety of the American Nuclear Reactors and US utilities are purchasing all available supplies of ore.
Additionally the French Prime Minister recently said, “We think nuclear energy is the solution for the future.”
We must be aware that the German decision is politically driven. The move to end nuclear power will increase energy prices and endanger German competitiveness.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.