Why Uranium is the Unexpected Beneficiary of the New Abe Administration

Last week, I wrote about Shinzo Abe’s victory in Japan. And I explained how many observers are focused on the monetary policy switch that will occur now that Abe is prime minister and the Liberal Democratic Party is in charge.

But drawing less attention is his administration’s plan to get Japan back on nuclear power, almost three years after the Fukushima disaster.

Shinzo Abe ran on a platform to overturn former PM Noda’s decision to abandon nuclear power. Since the nuclear disaster, Japan has shut its fleet of 54 nuclear reactors, and instead is turning to coal, oil and gas.

But the reality of that switch was very expensive, as using those fuel sources proved more expensive than nuclear, which represented 27 percent of Japan’s electricity generating capacity.

Mostly in reaction to the decision by the Japanese and other European countries to get off nuclear power, the cost of uranium declined sharply, from $65/lb. pre-Fukushima to a low of $40.80/lb. in November.

As you would expect, the uranium mining sector has simply collapsed in the wake of the Japanese disaster as fears mounted that Japan, no longer a source of demand for uranium, might actually now become a net seller, disposing of its uranium stock piles that were no longer useful.

To be sure, Shinzo Abe is not king of Japan, so I imagine there will be some political fights over the matter. But with such a strong majority in the recent election, incremental demand for uranium by Japan appears somewhat likely. And a continuation of the abandonment of the power source looks over, at a minimum.

If Japan restarts its nuclear reactors, uranium and the miners who hunt for it could see a windfall.

That is bullish for the uranium market, and most likely represents a turn in the fortunes of uranium miners. So for savvy contrarian investors looking for some value in this market, the uranium mining sector, which is basically at all-time lows, has to be attractive.

The best way for you to consider playing a rebound in the price of uranium based on increased Japanese demand is through the Global X Uranium ETF (URA). This exchange traded fund holds stocks in many of the largest uranium miners in the world, including Cameco, Paladin Energy, and Uranium One.

Uranium prices won’t skyrocket overnight. But a return of nuclear power to Japan is bullish for uranium and uranium miners. And is a chance for you to get in early on the trend.

Best,

Tom Essaye