Unjustified Post-Tsunami Pullback

By Arthur Pinkasovitch | March 25, 2011 AAA

Following the catastrophic tsunami in Northern Japan and the subsequent damage to the Fukushima Daiichi nuclear power plant, investors have been aggressively unloading their nuclear energy positions as speculation about the future of the industry has come under scrutiny. However, Japanese officials have stated that the country will continue moving forward with its nuclear expansion program. Hidehiko Nishiyama, a seasoned bureaucrat, warned that blackouts are the only current alternative to nuclear power.

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Nuclear Ambitions
Currently, 30% of Japan's electric output is obtained through nuclear sources. By 2020 the target goal remains at 40% and by 2032 estimated capacity is expected to increase by an additional 25%. If Japan is unable to meet its power demands without nuclear inputs, it is unrealistic to believe that countries like Lithuania, France and Ukraine, which use nuclear energy to meet 75%, 76% and 49% of their total respective electric outputs, will turn to other alternatives. Currently, nuclear energy generates 2600 billion kWh per year; according to Exxon Mobil's (NYSE:XOM) 2030 Energy Outlook, this value will increase by approximately 70% within the next 20 years.

Business as Usual
Most nuclear industry firms have stated that they do not expect their programs to be scaled back. J.M Bernhard, CEO of the Shaw Group (NYSE:SHAW), announced "At this time, we do not believe there will be an impact on Shaw's nuclear projects currently under construction in the United States and China. Our customers have indicated they intend to move forward, and we believe the construction timelines will continue as planned,"

Likewise, according to the Wyoming Business Report, Cameco (NYSE:CCJ) executives are confident that state mining operations will not be deterred by the events. Even General Electric (NYSE:GE), which was heavily criticized for malfunctions related to their Boiling Water Reactor which supposedly failed to properly perform following the disaster, has been convincing in its argument that the cooling units "performed as designed and initiated safe shut down processes."

Although financial damage from the earthquake and the tsunami will undoubtedly be tremendous with governments estimates pegged at 25 trillion yen ($309 billion), strict building codes have somewhat mitigated some of the costs. Most insurance companies have not yet released estimates on how they will be impacted by the disaster. Manulife (NYSE:MFC), however, announced that it believes that its share of the damage will only be $150 million. Although this amount is significant, it is not enough to justify the recently observed selloff.

Insurers will not face the full costs of the damage. In 1995, for example, following the Kobe quake, insurers only had to pay out $3.5 billion, despite that the extent of the damage was nearly $120 billion.

The Bottom Line
The fifth-largest recorded earthquake has caused a shift away from market fundamentals as fear has become a primary driving force. Uranium miners have experienced huge stock price pullbacks, despite continued demand for nuclear power and lack of contraction in the industry. Production appears to be moving forward at the expected rates as countries continue to pursue greenhouse gas friendly alternatives. Nations do not intend to stop their nuclear programs.

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