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Aftershocks from the Japanese earthquake: Nuclear meltdown or industry stumbling block?
In the United States, nuclear energy and uranium mining is common. In fact, uranium mining is a $154 million industry, nuclear power plant construction and maintenance is a $4.5 billion industry, and nuclear power generation is a $33.2 billion industry. Add these industries together and it becomes clear that nuclear-related activities are big business in America. About 20.2% of US electricity comes from nuclear power, with Vermont generating the most at about 72.3% of its electricity via nuclear. Meanwhile, New Jersey logs 55.1%, Connecticut 53.4%, South Carolina 52.0% and Illinois 48.7%. It's safe to say that US consumers rely on nuclear energy.
Globally, nuclear power generates about 14% of the electricity supply. Entire countries like France rely on nuclear to supply more than 75% of its electricity, while Slovakia (53.5%), Belgium (51.7%) and Ukraine (48.6%) also depend on nuclear power. In Japan, nuclear power generates about 30% of all electricity, and significant growth was set to occur in the coming years. Nuclear was projected to account for about 41% by 2017, and 50% of electricity would come from nuclear by 2030. By these numbers, it's clear to see that nuclear electricity generation is a growing industry, but the side effects of the recent earthquake disaster in Japan may put a damper on this industrial energy source.
Miners
Because of the sector's size and worldwide reliance on this type of energy, many companies make their fortunes via uranium mining for nuclear power generation. Outside major players like BHP and Rio Tinto, other players include Cameco Corp. (CCJ.N), Uranium One (UUU.TO), Usec Inc. (USU.N) First Uranium (FIU.TO) and Uranerz Energy Corp. (URZ.TO). These firms are at the mercy of governments as plans to halt the production of more nuclear power plants may hinder the strong growth envisaged for their futures, particularly if a worsening situation results in Japan. Furthermore, as the nuclear power plants in Japan remain damaged and unlikely to reopen for quite some time, the downtime will mean that a huge chunk of uranium demand has now been eliminated.
An estimated 10% of global uranium consumption has been eliminated because of Japan's current problems, and the loss of uranium demand will likely push uranium prices down over the short-to-medium term. Price appreciation is expected to return in the long-term, as China plans to add about 160 nuclear plants and India about 58. With these countries' future expansion plans in mind, mining companies will face fantastic demand determinants. While prices for uranium have tumbled in recent days, demand for uranium for nuclear energy will likely return as Japanese recovery efforts continue. Over time, uranium prices should be pushed back up.
Plant manufacturers
According to the World Nuclear Association, 443 nuclear reactors are in operation worldwide, and 58 more are under construction. As noted, China and India have plans to produce a combined total of 218 more. The major nuclear power-construction companies include GE Hitachi Nuclear Energy (GE.N), Westinghouse Electric Company, AREVA NP (CEPFi.PA), Asea Brown Boveri (ABB.N), and Babcock & Wilcox (BWC.N), which is in a formal alliance with privately held Bechtel to build small, modular nuclear reactors. In light of the current and future state of nuclear plant manufacturing, construction and maintenance activity for many firms in the nuclear industry will remain for many years.
After the Japan disaster, concerns and public opposition surrounding nuclear energy and its overall safety will increase. Such opposition will likely result in great negativity toward industry players and increase the potential for lost business or (at least) construction delays for the players involved. While some increases in regulations and construction requirements may be implemented, this disaster's influence will pass in the medium term, and the industry will continue along its projected growth trajectory.
Power generators
Nuclear power generators constitute the biggest of the three US industries discussed here. Exelon Corporation (EXC.N), Entergy Corporation (ETR.N), Tennessee Valley Authority (TVC.N), and Dominion Resources (DRU.N) are the biggest US players for this sector. These four companies generate close to 40% of the US nuclear power generation industry's $33.2 billion in revenue. Any changes to regulation may adversely affect them and their operating performance. Moreover, players on the west coast close to fault lines may need to increase structural strength in light of recent earthquake activity.
US demand for nuclear power is already very evident, though, with more than 20% of the electricity supply coming from this sector. It remains unlikely that a phasing out of nuclear power will result. Firms may experience increasing competition from other energy sources because of renewed public opposition or concerns surrounding nuclear safety. Still, IBISWorld expects the industry to remains fairly intact within the United States.
Waiting game
Ultimately, we will have to wait and see what the current predicament in nuclear energy means for the companies and industries involved. Clearly, IBISWorld expects some short-term pains will be felt across this entire supply chain. Miners will feel the heat as prices tumble and overall demand falls because of the damage to Japanese nuclear plants. Reduced uranium demand will keep prices suppressed for some time. Prosperous times for miners should return in the long term, though, with emerging nations aggressively building plants and subsequently increasing demand.
Construction companies will likely be second-hardest hit, as some countries may look to reduce plans for nuclear operation. They may at least make it more difficult to meet construction requirements and standards. Increased regulations will likely lower demand or introduce extra costs involved in planning and implementation site development. On a related note, nuclear power generators are certainly facing lower uranium prices now, but they will likely face stricter regulations, too.
Despite all of the above contingencies, forecast growth rates for relevant industries remain positive over the next five years. US uranium mining is forecast to grow at an average annualized rate of 7.1% through 2015 while nuclear power-plant construction is projected to grow 4.4% and revenue for nuclear power generation is anticipated to increase 5.9%. Instead of signaling a sector-wide meltdown, the current aftermath of the recent Japanese earthquake predicament may pose a temporary hurdle.
For more industry news, follow IBISWorld on Twitter at @ibisworld
About the Author
IBISWorld is recognized as the nation's most trusted independent source of industry and market research, offering a comprehensive database of unique information and analysis on every US industry.Visit IBISWorld Industry Research
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