Uranium spot prices and shares of uranium mining companies have plunged amid fears that the situation in Japan could deteriorate into a nuclear meltdown on par with Chernobyl.
Investors fear that the explosion and subsequent radiation leaks at the Fukushima nuclear power plant will force other countries to tighten restrictions, or worse, abandon their pursuit of nuclear power as an alternative source of energy.
But if the nuclear fallout in Japan remains relatively contained, and other countries around the world move ahead as planned with their atomic energy projects, uranium prices will bounce back from their current level around $60 a pound to their pre-Japan crisis highs of $73 a pound.
And that would just be the beginning, as higher oil prices, concerns over carbon emissions, and soaring demand for nuclear energy could drive uranium prices back up to $90, or even $140 a pound as seen in 2007.
That's precisely the scenario we consider likely.
Indeed, Japan's disaster will not be the death of nuclear power.
On the contrary, this is a short-term blip that will drive antsy speculators out of the market and make room for investors looking to profit from the energy of the future.
In the next two years, uranium will move up unevenly. And by 2013, uranium prices will be at least $90 per pound, based almost solely on China's push into nuclear power. The PRC plans to double its electricity from nuclear power in the next ten years.
Powering Ahead
The price of uranium oxide, the most commonly traded form of the nuclear fuel, plummeted 27% to near-$50 a pound in the spot market immediately following the Japan earthquake and Fukushima explosion.
But since then, the spot price has rallied some 20% to more than $60 a pound - showing that many investors see uranium's dip as a buying opportunity.
And why shouldn't they?
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A gaping need still exists for an alternative energy source that doesn't carry the monetary or environmental cost of fossil fuels. And despite the catastrophe in Japan, many countries plan to expand their nuclear energy programs following a relatively brief review of safety regulations and protocol.
U.S. President Barack Obama has said that nuclear power, with new precautions incorporated into design, would continue to play a role in U.S. energy policy.
And then there's China.
China is the world's largest emitter of greenhouse gases. It's also undergoing a rapid modernization that has seen millions of workers flood its cities in search of factory jobs.
China seeks to employ solar, wind and hydropower to fuel its expansion, but nuclear power remains a priority.
China has 13 working reactors with a generating capacity of 10.8 million kilowatts, and 32 reactors under construction that will produce another 30.97 million kilowatts.
The Chinese government has said it will stop approving new plans for nuclear power plants until it develops safety regulations and improves its long-term plans for nuclear power in the country. But that still leaves the 32 reactors under construction and a state-of-the-art nuclear plant set to begin construction this month.
Even if China puts off the nuclear question for years, the power plants already being developed will boost uranium fuel needs worldwide, and most likely drive up uranium prices in the process.
China's 12th Five-Year Plan targeted 42.9 million kilowatts of nuclear power generation capacity by 2015 and 100 million kilowatts by 2020. Concerns about a potential meltdown forced authorities to back off that target, but only slightly.
Wei Shaofeng, deputy director of the China Electricity Council, said he believes the central government will reduce its 2020 target by just 10 million kilowatts - if it makes any adjustment all.
Meanwhile, other Asian countries are joining China in its pursuit of nuclear power. Even with the Fukushima disaster, these countries still see nuclear power as a viable substitute for their traditional coal-fired power plants.
India, for instance, is sticking to its plan for a 13-fold increase in nuclear energy capacity by 2030.
Nuclear power is still the cheapest, cleanest, most technologically mature source of electricity for many countries.
China and India, combined, will represent 30% of the world's total nuclear energy at the end of their expansions. That's up from just 4% right now.
And all of those new nuclear plants will need uranium to fuel them. As demand rises, expect prices to soar.
But There's A Problem
The world is parched for uranium.
Current global uranium demand is about 180 million pounds a year, while mine output is only about 140 million pounds.
Many reactors are running at 50% capacity. Some have even been taken off-line.
In the United States, the bulk of the uranium used in reactors doesn't even come from uranium mining. It comes from the approximately 20,000 decommissioned Russian nuclear warheads. The uranium from these nuclear weapons is enriched and sold to the U.S. as part of a 1987 disarmament agreement.
The "Megatons to Megawatts" program has helped make the United States the world's largest producer of nuclear power.
But the program is running out of nuclear warheads to convert, spelling the end of guaranteed access to uranium supplies for U.S. nuclear reactors. When the warheads dry up, the U.S. will have to import more uranium to satisfy its needs, and by then, domestic and global demand will be significantly higher.
A Buying Opportunity
Indeed, the growth prospects for nuclear power remain strong, as do the prospects for its yellow cake fuel.
In fact, uranium demand will grow by 33% in the next decade to correspond with projected growth in nuclear reactor capacity, according to the World Nuclear Association.
There are 440 operating nuclear reactors in the world, and another 60 under construction.
Nuclear power plant construction may slow for a few months while countries reevaluate their safety standards, but that doesn't mean a massive drop in the industry is coming.
Uranium miners are unfazed by the current dip in prices.