Governments from Japan to South Korea to California are making policy "U-turns" on nuclear power as the cost of energy soars in some of the world's largest economies. Uranium industry experts say the trend will tighten a market where production is already below demand.
Uranium stocks soared following Japanese Prime Minister Fumio Kishida's announcement last week that his country would restart idled nuclear plants, and focus on the development of next-generation reactors.
Toronto-listed shares of Cameco (CCO.TO)(CCJ), one of the world's largest uranium producers based in Saskatchewan, have climbed more than 30 per cent since then. Denison Mines (DML.TO), another Canadian producer, has added nearly 34 per cent.
It's a massive shift in Japanese public opinion, which has been sharply against nuclear power since the deadly 2011 disaster at the Fukushima Daiichi Nuclear Power Plant. The incident inspired Germany to follow Japan's lead in phasing out its power plants, and caused a protracted slide in the price of uranium. Now, with winter on the way, both countries are facing an energy crisis as benchmark prices for natural gas and other commodities hit record highs due to Russia's war in Ukraine.
"If Japan thought they had another solution to this problem, they probably would have gone to that solution," Nick Piquard, vice-president and portfolio manager of Horizons ETFs said in an interview. "This translates to an even more bullish perspective in countries like China and India that are building nuclear power plants, and don't have the history that Japan does."
Whether it's the deepening energy crisis in Europe, Tesla (TSLA) boss Elon Musk calling those who would shut down reactors "anti-human," or the infamous Reddit forum r/wallstreetbets musing about spiking uranium prices, it's hard to ignore the radioactivity-bullish mood of those invested in a nuclear-powered future.
Toronto-based Sprott Asset Management has seen its Physical Uranium Trust (U-UN.TO) rise about 20 per cent since the Japanese prime minister's Aug. 24 announcement. Last December, chief executive officer John Ciampaglia called for the strong returns his fund saw in 2021 to continue this year as nuclear acceptance spreads.
California's Diablo Canyon nuclear power plant has been slated to close in 2025 since 2016. Governor Gavin Newsom, a longtime proponent of shutting down the plant, has openly supported keeping the state's only operational nuclear power facility open.
"What politicians have figured out is that we've loaded a lot of intermittent power into the grid over the last 20 years, and that's been a good thing. But it's not a magic bullet," Ciampaglia told Yahoo Finance Canada in a recent interview.
"You need backup baseload power generation to offset the intermittency of renewables. There are only three ways to do that. You can burn natural gas. You can burn coal. Or you can have nuclear power plants."
Ciampaglia says snap decisions to extend the life of nuclear power plants pose major challenges. For example, enriching uranium into usable nuclear fuel requires a long production cycle, with utilities typically making purchases years in advance.
"A lot of that end fuel, about 40 per cent of it, is actually produced in Russia," he said. "Most utilities are not entering into new supply agreements with Russian enrichment firms. But they are continuing to accept delivery under previous contracts. The reason is that there's no spare capacity in the West."
"Then you have other countries like the U.K. and India saying we're going to build more power plants," Ciampaglia added. "You can start to see the cumulative effect on what the future demand for uranium will look like."
He estimates an averaged-sized plant requires about half a million pounds of uranium per year for its base load fuel. Last year, he says roughly 130 million pounds were mined, while total demand reached about 180 million pounds. The difference came from secondary supplies.
"All of that excess inventory is coming to an end," Horizons' Piquard said. "So, we really have a big production shortfall here."
He says "the big winner here is Cameco." The Canadian uranium producer has been a long-term fuel supplier to the Japanese nuclear market, and has active contracts with Japanese utility customers.
A company spokesperson told Yahoo Finance Canada that it's too early to gauge how quickly demand will pick up due to Japan's announcement, noting some utilities have maintained an inventory of fuel, and so far only 10 reactors have been restarted in the country.
"In addition to Japan's announcement, in recent weeks and months, we have seen several jurisdictions – including Germany, Belgium and California – revisit their plans to ramp down or phase out nuclear energy generation. When ideology is removed from the equation and the serious challenges of climate health and energy security rise to the fore, the ability of nuclear power to deliver safe, reliable, affordable, zero-emission baseload electricity simply can't be ignored," Cameco government relations and communications director Jeff Hryhoriw wrote in an email.
"We are presently seeing perhaps the best market fundamentals Cameco has ever witnessed in the nuclear energy sector," he added. "Primary uranium supply is falling, with many mines having reached the end of their productive capacity and depressed prices that have not incentivized new supply for the past several years."
Piquard and Ciampaglia agree that the price of uranium will have to climb significantly to spur new production.
"If you want to bring a new mine online for the first time, that might require uranium prices of US$70 or US$75 or US$80," Ciampaglia said. "Not US$50."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.