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Nuclear Power Looking for Signs of Growth from, of All Places Japan

14 March 2014 in Trading Ideas

At first glance, it doesn’t exactly follow that the country that suffered this young century’s worst nuclear disaster would be ready to recommit to the atom.

To be sure, the nuclear industry hasn’t been particularly popular following the meltdowns at the Fukushima Daiichi power station in 2011.

After the accident, Germany, Switzerland, and Belgium all moved to close down or phase out their nuclear programs.1

Here in the US, reactors have struggled to compete with gas-fired power plants fueled by the shale gas boom. According to the Financial Times, four nuclear plants have been closed in the past 18 months.

Now, however, in Japan, of all places, the government of Prime Minister Shinzo Abe is poised to declare its long-term commitment to nuclear power, reversing the previous administration’s plan to shut down all of the country’s power plants before 2040.

Late last month, a draft of the government’s Basic Energy Plan was made public, calling nuclear “an important baseload electricity source.”

News of Japan’s about-face has given nuclear stocks a lift. The Nuclear Renaissance motif has risen 5.6% in the past month. During that same period, the S&P 500 has increased 2.8%. Shares of uranium miner Cameco Corp., which comprise about one-quarter of the motif’s weighting, have jumped 19.6% in the past month.

In the past 12 months, the motif is up 24.9%. The S&P 500 has increased 22.9% during that time.

The FT noted that the restart of Japan’s reactors could also have implications for world energy markets. For example, Japanese imports of liquefied natural gas shot up after it closed its nuclear plants down, pushing up the price of LNG in Asian and European markets. Moderation in Japanese demand could draw down consumption estimations in the world’s LNG market.

It’s also possible, the FT said, that a restart mode by Japan could also portend a nuclear revival in the country, possibly even including the construction of reactors.

There also signs around the world that nuclear energy continues to gain some favor. US-based Southern Co. just received $6.5 billion in government loan guarantees to build two new reactors.2

Meanwhile, emerging markets may provide the leadership in nuclear’s renaissance. While the US is still in “jumpstart” mode, Cameco Chief Financial Officer Grant Isaac said his company expects that there will be three times as many reactors in China (59) in 2022 as there was in 2013 (19). In India, the company expects the reactor count to grow to 36 from 21.2

It appears entirely plausible that nuclear energy development could be a significant option for emerging-market countries that are without abundant access to shale oil and gas.

1Jonathan Soble, “Japan in U-turn over nuclear policy,” FT.com, Feb. 25, 2014.

2Reuben Brewer, “Is This the Start of a Nuclear Renaissance?”, The Motley Fool, March 9, 2014, http://www.fool.com/investing/general/2014/03/09/is-this-the-start-of-the-nuclear-renaissance.aspx.