Analysts are warning that the nuclear crisis currently unfolding in Japan could have a significant impact on the uranium sector.
“The market’s expectations for nuclear power expansion may be reduced in the near term while the world considers its options,” BMO Capital Markets analyst Edward Sterck wrote in a note to clients.
Greg Barnes of TD Newcrest pointed out that after the Three Mile Island and Chernobyl disasters in 1979 and 1986, the uranium market went into “hibernation” for 20 years. He does not expect that to happen again today. But he noted that some reactor construction could get delayed, especially in areas prone to earthquakes (like China). He also wrote that Japan accounted for about 12% of global uranium demand last year. Obviously, that could change.
RBC Capital Markets analysts Adam Schatzker and Fraser Phillips sounded a more optimistic tone. While they acknowledged that the disaster may cause countries to delay or cancel plans to build new reactors, they think the outlook for uranium still looks positive.
“If new [reactor] build plans continue in countries like China, Russia and India, demand should continue to grow,” they wrote.
However they also noted that the uranium spot price could weaken in the near term and demand from Japan could decline in the longer term. If the Japanese recover from this crisis without a significant meltdown, investors should maintain their uranium holdings, they wrote.
If the uranium market does take a significant dip, analysts think industry leader Cameco Corp. should be fine, as it has a solid balance sheet and a lot of fixed-price contracts. However, Mr. Barnes still downgraded the stock to “hold” (from “buy”) and lowered his target to $42.00 a share (from $51.00). That just reflects a more cautious view on the sector.