China's Guangdong Nuclear Power Holdings Co. said it will need more than 100,000 metric tons of uranium between 2009 and 2020 to feed its growing portfolio of nuclear powered plants. Guangdong currently uses 2,000 tons per year and its needs will jump to more than 10,000 tons per year. Since the world is already using more uranium than it can produce each year this should mean the price is going up.
China's domestic uranium production from its five operational mines is estimated to be 840 tons per year. The World Nuclear Association estimates that global consumption is 65,000 tons per year. The same agency has tracked uranium production by country since 1998 and 2008 global production was only 43,764 tons. Obviously we have a problem since the number of nuclear plants under construction or in the planning stages total more than 200.
I have written about this for years because we are very close to a major short squeeze on prices. For most of the last decade the U.S. decommissioned U.S. and Russian nukes and demilled the highly enriched cores to create reactor fuel for use in nuclear plants. This offset the shortage of mined uranium. Over the last 20 years the number of nuclear plants constructed was very small. Several highly publicized reactor accidents like Three Mile Island and Chernobyl caused the public to shy away from nuclear plants in their backyards. The green energy movement and several generations of new equipment have brought nukes back into the realm of acceptable. Fast-forward 10 years and there will be a short squeeze on uranium to fuel these plants that will make the price of gold today look cheap.
Guangdong Nuclear is expected to have 34 gigawatts of generation capability by 2020. That will be an increase from their current 3.94 GW. China only has 11 civil nuclear plants today but plans on building dozens more to raise total capacity to more than 70 GW by 2020. Guangdong is only one of China's nuclear plant operators. The other is China National Nuclear Corp (CNNC). CNNC is currently mining uranium in six different countries. Back in May, China's top energy official said long range plans would see China having more than 100 nuclear plants within 20 years.
Guangdong is not going to limit its plant building to China. They are also targeting Vietnam, Thailand, Malaysia and Indonesia. The company is trying to buy controlling stakes in major uranium miners Cameco, Areva and Paladin Energy as well as contracting for production for decades in advance.
Uranium is currently selling for $43 a pound after reaching $138 back in June of 2007. The price fell after major suppliers cut deals with prior purchasers to allow them to sell existing user stockpiles and replace them later. These deals have now faded and the nuclear weapon program is over. We are quickly going back to the law of supply and demand and as you can see above demand is exploding but supply is limited. This is a major short squeeze building but it could take a couple more years before it reaches critical mass. Cameco believes that the target range for uranium over the next couple years is $50 to $70 a pound.
I would be a buyer of Cameco (CCJ) on any dip. They are the largest producer of uranium and should produce 20 million pounds in 2009, which is 10,000 tons for those slow in math. BHP Billiton (BHP) is also a favorite plus you get gold and oil with BHP. There are a bunch of uranium penny stocks but you are better off to go with the known producers.
Chart of BHP
Chart of CCJ