On March 11, 2011, an 8.9-magnitude earthquake and resulting tsunami near the island of Honshu, Japan caused a nuclear accident at the Fukushima Daiichi nuclear power plant. The damage caused by these twin disasters led to equipment failures, inhibiting safety measures and causing a nuclear reactor meltdown.  Since then, the shuttered Fukushima Daiichi nuclear plant has been an ongoing source of radioactive leaks. Moreover, the last few years have exposed deficiencies in Japan’s nuclear industry and regulation and, perhaps, in general a false belief that this technology was safe.

The temporary halt at most of Japan’s nuclear reactors was not enough to satisfy local ire. Japan’s citizenry, hurt by the loss of life and physical damage, called for a phase out of nuclear power. The worst nuclear accident since Chernobyl led to swift reaction, with many countries initiating or calling for a re-evaluation of existing nuclear power programs. Germany led the way, idling most of its facilities.

With 30% of its electricity-generating capacity lost, Japan has been forced to rely on liquefied natural gas, oil, and coal. However, given the precarious political situation in the Middle East, Japan’s options for energy could dwindle even further. Moreover, should Japan depend wholly on these other sources of energy, it would incur billions of dollars in additional costs each year.

Time helps heal wounds. Economic realities and the recent election of Shinzo Abe as Prime Minister gave the domestic nuclear industry a boost when he said Japan needed more nuclear energy. What’s more, the country’s Nuclear Regulatory Authority has finalized new safety guidelines against which reactor restarts will be evaluated. Four utilities have applied for the restart of 12 reactors.

The impact of the Fukushima incident on uranium, the main source of nuclear power was material, with prices plummeting from roughly $64 per pound in 2011, to $33 per pound currently. Dour operating conditions have forced the whole industry to curtail capacity. In the short term, prices will probably continue to face sluggishness as long as idled reactors in Japan lead to excess global supply.

Despite the fact that spot prices are at an eight-year low, market expectations suggest a rebound is around the corner.  In fact, negotiations on long-term contracts are being settled in the $50 per-pound area. This dichotomy is partially due to the fact new reactors in energy-deficient countries, including China and India, are still scheduled to be built over the long term. In fact, incremental demand should compensate for a possible decrease in uranium consumption should Germany phase out nuclear power within the next decade, as stated.

At the time of this article’s writing, this author did not have any positions in any of the companies mentioned.