By Andrew Nelson
Despite a run of soft sentiment that's only worsened since the March 2011 Fukushima nuclear power plant accident, it still seems fairly clear that policy makers across the globe remain committed to nuclear power for the most part. Despite a few naysayers like Germany and Japan recently "talking about" leaving the nuclear power marketplace, global demand is still expected to increase significantly over the medium to longer term via ongoing demand and new work in Asia, the US and yes, even Europe.
This combination of increasingly tight supply and steady demand growth for nuclear power sees analysts at Morgan Stanley upgrade their view on the uranium market.
The broker expects global nuclear power capacity will increase by 38% over the next eight years as countries chase lower levels of carbon emissions while trying to keep prices down on generation and distribution. This is very much the case in China, although the broker also expects Japan will return to around 60% of its pre-Fukushima level by 2020 despite the recent anti-nuclear rumblings coming from the government.
Based on this sort of demand, Morgan Stanley expects uranium supply will start falling short of its projected demand growth as soon as 2014, lagging demand by some 11.5mlbs in 2015 based on current production levels. The broker expects this gap will continue to widen, increasing to a shortfall of 17.8mlbs by 2020. That is, of course, unless new supply continues to come on line.
There is one major factor required to bring new supply on line and that is higher prices, which will be the only thing that generates new investment and development. On the broker's numbers, the minimum price it will take to encourage new production through this 8-year period is US$69.50/lb.