(Repeat for additional subscribers)
Feb 27 (The following statement was released by the rating agency)
Japan's apparent plan to restart nuclear power
generation could help uranium prices return to a profitable level for producers,
while making it harder for new LNG projects to attract the long-term customers
they need to get started, Fitch Ratings says.
Japan's recently published Basic Energy Plans calls nuclear 'an important base
load energy source' and increases the likelihood that reactors will be restarted
following ongoing safety checks. In the long term, this could support demand and
prices for uranium, benefitting miners such as Uranium One of Canada or
Kazatomprom of Kazakhstan.
Uranium producers that sell most of their production at spot prices, such as
Uranium One, would benefit the most. After the Fukushima disaster in March 2011
spot prices for triuranium octoxide gradually declined from nearly USD60/lb to a
low of USD35/lb in H213. We would not expect an immediate price rebound to
pre-Fukushima levels as Japanese utilities have at least two to three years'
worth of uranium inventory and only around a dozen reactors are likely to be
restarted in 2014-2015. But we believe that spot prices could rise to about
USD40-USD45/lb in 2014, the estimated median level of uranium cash production
The impact on Kazatomprom would be less significant, as it sells only half of
its output at spot prices and the other half at long-term prices. Market quotes
for long-term uranium prices have recently been around USD50/lb. Looking further
ahead, China's growing need for uranium to support its ambitious nuclear
build-out programme is likely to have an even more significant impact on prices.
We believe that South Korea will also remain committed to nuclear generation.
A policy shift could hurt LNG producers, which had benefitted from a dramatic
increase in demand in Japan to compensate for the loss of nuclear generation. In
January-November 2013, Japan imported 108 billion cubic meters (bcm) of LNG,
making it by far the world's largest LNG importer. Correspondingly, average
Asian hub gas prices in 2012-2013 were 50%-60% higher than those in Germany or
the UK, and touched an all-time high in recent weeks.
Japan's U-turn and the significant amount of new LNG capacity coming on-stream
through 2017/2018 should reduce Asian LNG prices and provide more bargaining
power to the buyers, who have been pressing for lower prices based on a basket
of indices, rather than the largely oil-linked pricing for LNG in Asia
These pressures could weaken the economics of already operational or under
construction projects, due to increasing spot exposure and moderation of prices.
But we believe the biggest challenge would be for projects that are waiting to
reach Final Investment Decision stage, which typically happens when buyers sign
long-term contracts for a large share of project capacity, including some level
of commitments on price levels. Risks to operators can increase, if these
projects go ahead without sufficient commitments or visibility on earnings.