The Future for Nuclear and Uranium Equities
On 8 June 2012, the website for financial analysis and stock market news Seeking Alpha published an article providing an insight into the factors likely to determine the future movements of nuclear energy stocks. While some investors are anticipating a bull market, others are taking a more sceptical approach. The article’s authors have outlined a framework intended to provide investors with some perspective regarding the factors which are likely to impact the future trends for uranium and nuclear equities.
According to the authors, their framework should help investors assess the potential sector performance in the next several months against the background of heavy recent losses to many equities in the sector. In addition, it may be applied to predict the performance of individual companies within the nuclear energy sector, such as Cameco (CCJ), Denison Mines (DNN), Uranium Energy (UEC), Uranerz (URZ), Ur-Energy (URG), and Uranium Resources (URRE).
The factors determining the performance of nuclear energy stocks may be divided into two main categories, with the first being the macro and public policy environment. A “positive” global macro environment will exist in the case of a strong economic recovery at a global level, coordinated global easing and no significant geopolitical shocks. In addition, an improved public sentiment toward nuclear energy also needs to be present. The characteristics of a negative macro and public policy environment on the other hand are a weak global economic recovery, significant geopolitical shocks as well as deterioration in public sentiment toward nuclear energy.
!m(/uploads/story/115/thumbs/pic_1_inline.png)The second category of factors determining either the downward slide or sustainable rally of nuclear energy stocks is the category of supply and demand fundamentals. Among the factors pointing to positive supply-demand circumstances, as noted in the framework, are a reduction in the amount of secondary supply available, such as stocks currently held by governments and utilities, as well as production downgrades leading to a more constrained supply. China can also potentially contribute to the positive environment if it continues with strong uranium imports. New nations moving forward with their nuclear development programmes will also have a positive impact in terms of demand.
A negative supply-demand environment will be determined by factors such as an increase in the amount of secondary material available to the market, driving supply up, as well as uranium production surprises on the upside. New nations moving away from their nuclear development programmes as well as China curbing its uranium exports will further decrease the nuclear energy demand.
The presence of positive macro and public policy environment combined with positive supply-demand fundamentals will create a sustainable bull market for nuclear equities. Similarly, a strong bear market will be determined by negative supply-demand factors on the one hand and a negative macro and public policy environment on the other.
The framework also includes the possibilities of negative global macro environment and positive supply-demand fundamentals and vice versa. In the first case, the market is expected to muddle through, whereas a positive macro and public policy environment combined with negative supply-demand factors will result in a temporary relief.