* Illiquid spot uranium market expected to tumble
* Speculators seen caught out by Japanese crisis
* Long term recovery seen on nuclear as carbon-free energy
By Eric Onstad and Pratima Desai
LONDON, March 14 Spot uranium prices are
expected to slide as speculators cash out and confidence in
nuclear power is shaken in the wake of an earthquake in Japan
that has left it struggling to avert a nuclear meltdown.
The longer-term outlook for uranium may be less negative,
however, since many countries such as China are expected to
press ahead with nuclear energy as a carbon-free alternative to
meet commitments about global warming.
"Definitely the spot market is illiquid, and this kind of
thing is going to be clearly bearish," said analyst Max Layton
at Macquarie Equities in London. "Highly likely it's going to be
Spot prices of uranium oxide UX-U3O8-SPT, the saleable
form of uranium, had surged 76 percent over six months to a peak
in early February of $73 per pound.
The last quotation was $66.50 a pound, but it was unclear
how soon the impact of Japan's crisis would hit the spot market
due to the limited number of participants. A substantial amount
of uranium is sold on long-term contracts to utilities.
The negative reaction was evident in a slide in share prices
of uranium miners. [ID:nL3E7EE00B] [ID:nL3E7EC0D6]
Top Canadian uranium miner Cameco (CCO.TO) skidded 15.3
percent in trading before the morning bell, and Energy Resources
of Australia (ERA.AX), a unit of global miner Rio Tinto (RIO.L)
(RIO.AX), shed 12.2 percent.
SPECULATORS MAY EXIT
Analysts say speculators had helped boost uranium prices
recently by buying physical material, betting on big growth
plans by China, India and others to expand nuclear generation.
"If any of them (speculators) look to exit their positions,
it is an very illiquid market and they might struggle to get out
of those positions smoothly," said analyst Edward Sterck at BMO
Capital Markets in London.
The situation is comparable to the last major rally, when
prices shot up to an all-time record of $136 a pound by June
The recent rally was not as strong as the one in 2006-07, so
prices are not expected to tumble back to the low hit in the
middle of last year of $40.75 a pound, Sterck added. "I couldn't
say where we're going to end up, but I don't think we're going
to go back to those lows again."
The physical impact on the uranium market of Japan's
shutting down 11 of its 54 operating reactors depended on
whether the country continues to take deliveries to build
stockpiles. The uranium used by these plants is equal to about
2-3 percent of global demand, analysts said.
NUCLEAR KEY AS CARBON-FREE ENERGY
While the reputation of the nuclear industry will take a
knock, in the longer term, uranium and the nuclear industry is
likely to recover due to its importance as a carbon-free source
"There are really no alternatives to nuclear power -- wind
turbines are not a viable substitute ... Countries such as China
have no choice but to continue along the nuclear path," said a
UK fund manager who specialises in uranium.
China's growth plans for its nuclear industry will require
huge amounts of uranium to fuel plants.
China has 13 reactors currently in operation, with a total
generating capacity of 10.8 gigawatts, but the government has
approved an additional 32 units -- with a capacity of almost 35
gigawatts. Furthermore, many in the industry have been lobbying
the government to double its target of 40 gigawatts of nuclear
capacity by 2020.
The head of China's National Energy Administration, Liu
Tienan, said on Sunday Chinese parties must carefully analyze
the accident. The chairman of Shaw Group, which is building four
reactors in China, said on Monday it did not see an impact on
projects under construction in China. [ID:nTOE72D03B]
"The reaction of China to this crisis will have the greatest
implications for future uranium demand", said Ian Hiscock, a
consultant at CRU Group. "The long-run market fundamentals of
the industry remain in place with security of supply and CO2
emissions key challenges for the energy market."
Another argument for an eventual rebound is that the new
generation of nuclear plants are safer than those that are
having problems in Japan.
Even Japan is likely to continue with its nuclear building
programme with stricter safety guidelines, Layton said.
"I think consumption will go ahead from Japan. What they'll
do is create bigger and strong tsunami walls and create even
more reliable back-ups."
How soon the industry recovers depends on the severity of
Japan's crisis. "To a degree it depends whether this thing melts
down, then the impact on sentiment towards nuclear is even
greater," Layton added.
Global demand for uranium is 180 million pounds a year, of
which 140 million pounds comes from mine production. The rest is
filled by stockpiles and downgraded weapons-grade uranium,
according to Cameco.
(Editing by Jane Baird)