https://nondollarreport.com/2016/07/pollution-in-china-signal-to-buy-uranium/?src=email
The Chinese may or may not care about the distant threat of climate change, but they definitely care about the immediate threat of not breathing. China’s growing anxiety about its infamously foul air is reason enough to expect the price of uranium to soar over the next few years.
As China’s awful air quality continues to worsen, the need to do something about it becomes increasingly urgent. That’s where uranium comes in…
China has very few large-impact tactics to use in its battle against air pollution, but nuclear energy is one of them. That’s why China has embarked on a massive nuke-building program. As these new plants come online, demand for uranium will surge.
Our story begins with the pie chart below…
According to the annual BP Statistical Review of World Energy, coal provided nearly two-thirds of the energy China consumed in 2015, while oil and gas provided most of the rest. Nuclear energy added a mere 1.2% to the mix.
This extremely heavy reliance on fossil fuels is the reason the Chinese are choking on their own air.
“Some 83% of Chinese are exposed to air that, in America, would be deemed by the Environmental Protection Agency either to be unhealthy or unhealthy for sensitive groups,” The Economist reports. “Almost half the population of China experiences levels of PM2.5 [i.e., pollutant particulate matter] that are above America’s highest threshold.”
To put these numbers in perspective, a research group called Berkeley Earth has converted the PM2.5 data into a cigarettes-per-day equivalent. Thus, according to the group’s analysis, breathing Beijing’s air on a bad day is the equivalent of smoking almost 25 cigarettes.
The chart below presents Berkeley Earth’s cigarette-equivalent data for the rest of China.
Clearly, China has a serious air quality problem. Unfortunately, there is no “quick fix” for it.
Instead, the fix will require a daunting, decades-long effort to reduce the country’s heavy reliance on coal-fired energy. If all goes as hoped, nuclear energy and renewables will contribute a growing percentage of China’s energy needs.
So the Chinese have rolled up their sleeves and started building a large number of nuclear plants.
“Mainland China has 34 nuclear power reactors in operation, 20 under construction, and more about to start construction,” the World Nuclear Association reports. “Additional reactors are planned, including some of the world’s most advanced, to give a doubling of nuclear capacity to at least 58 GWe [gigawatt electric] by 2020-2021, then up to 150 GWe by 2030 and much more by 2050.”
This new wave of nuke construction in China is part of a global nuclear renaissance. According to the Organisation for Economic Co-operation and Development’s International Energy Agency, global installed nuclear capacity growth will surge about 60% over the next 15 years, with China accounting for roughly half of that growth.
Or to put it another way, the number of nuclear plants in operation worldwide will increase by roughly eight per year over the next 20 years – from 440 to 595.
This construction boom is a striking departure from the trend of the last 20 years, when the net number of operating nuclear reactors increased by exactly zero.
Four-hundred and forty plants were operating in 1996. Four-hundred and forty are operating today.
But that no-growth phase is over… and a new nuclear boom is underway.
This boom does not guarantee that the uranium price will soar, but it certainly improves the odds.
As the chart below shows, uranium demand already exceeds the annual mined supply. The gap has been filled by stockpiles from places like Russia and Japan. Remember, Japan shut down all 54 of its reactors and did not begin to restart a meaningful number of them until very recently.
So rather than a buyer of uranium, Japan has been a seller of uranium from its stockpiles. That trend should reverse as the country continues restarting its reactor fleet. And that trend is likely to coincide with growing uranium demand from China and elsewhere, which is why the gap between demand and mined supply is likely to widen substantially over the next few years.
Admittedly, any upbeat forecast for the uranium market must acknowledge how extremely downbeat the market is today. Earlier this week the uranium price touched a new 11-year low, as the world seems to be awash in excess supplies of uranium.
But it’s moments like these – when almost no one can imagine a reversal of fortunes – that it often pays to imagine one. At today’s extremely depressed uranium price, the upside potential is probably much greater than the downside risk.
One way to invest in uranium is to purchase shares of Uranium Participation Corp. (TSX: U), which trades on the Toronto exchange (recent price: $4.12). This company, as its website explains, “invests substantially all of its assets in uranium oxide in concentrates (U3O8) and uranium hexafluoride (UF6) (collectively “uranium”), with the primary investment objective of achieving appreciation in the value of its uranium holdings through increases in the uranium price.”
Sadly, it has achieved the exact opposite objective so far. At the current quote, the share price of Uranium Participation Corp. is within a whisker of its all-time low.
A near-term reversal in the uranium price is probably unlikely. But a reversal over the next year or two is probably not unlikely at all. In fact, my good friend and natural resources expert Rick Rule expects the uranium price to double over the next two years.
Maybe that will happen; maybe it won’t. Either way, the uranium price is extremely low… and is providing patient investors with a great entry point to a compelling long-term trend.
Cheers,
Eric J. Fry
For The Non-Dollar Report
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