Why these ASX uranium shares are plunging today

A nuclear power plant incident appears to have investors worried.

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ASX uranium shares are in a sea of red on Tuesday.

At the time of writing, leading ASX uranium producers and explorers such as Paladin Energy Ltd (ASX: PDN), Boss Energy Ltd (ASX: BOE) and Deep Yellow Limited (ASX: DYL) are plunging by 13.91%, 8.11% and 7.78% respectively.

What’s driving the selloff for ASX uranium shares?

ASX uranium shares are on the slide following reports the US Government is assessing a leak at a Chinese nuclear power plant.

The plant is a joint venture between state-run China General Nuclear Power Group, which owns 70%, and French power giant Electricite de France (EDF) which owns the remaining 30%.

According to the Wall Street Journal, EDF requested an extraordinary board meeting with Chinese managers to gather more information about the buildup of gases inside one of the plant’s reactors. The French company warned of an “imminent radiological threat”.

The BBC reported a slightly different narrative, saying that EDF confirmed that the built-up gases within the plant were deliberately released. The plant’s Chinese owners refute the claims of a potential leak and say that the plant is operating safely.

The International Atomic Energy Agency (IAEA) has reported that “at this stage, the agency has no indication that a radiological incident occurred”. The agency is currently in contact with its counterparts in China to assess the issue.

A hit to uranium confidence

The uranium sector has staged a bullish comeback in recent months, after hitting multi-year lows around the time of the COVID-19-induced market crash.

In the case of Paladin Energy shares, they tumbled by more than 90% from 2007 highs of around $8.50 to as low as 3.5 cents in March 2020.

The harsh selloff was driven by the significant decline in uranium prices, from 2007 peaks of ~US$135/lb to lows of about US$20/lb by 2016. This sent many producers, like Paladin Energy, into hibernation.

More recently, uranium prices have edged higher to the US$30/lb mark.

Paladin Energy believes a supply shortage in uranium is imminent, with current supply unable to meet demand. The company recently initiated a capital raising to help clear debt and restart uranium production.

The primary use case of uranium is fuel for nuclear power reactors. Paladin Energy says that nuclear is the second-largest source of global clean energy with almost zero-carbon emissions.

Despite the recent resurgence in ASX uranium shares, the potential incident at the Chinese power plant appears to be taking a toll on sentiment.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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