‘Scotty, I need more power’

In the absence of the discovery of Dilithium Crystals that help power the starship USS Enterprise, Constellation Energy and IT giant Microsoft, recently signed a deal to re-start a unit of the ‘infamous’ Three Mile Island nuclear plant in Pennsylvania.

For those not old enough to remember, part of the site closed in 1979 after a partial meltdown, in what was the most serious nuclear accident in US history!

The power unit at Three Mile Island, which is still subject to the necessary regulatory permits, is expected to become operational again in 2028, and the power supply deal will be for 20 years. The plant could provide 835mw of electricity, or enough to power 700,000 homes.

However, it is intended that the entirety of the plant’s energy output will be sold to Microsoft.

There has been a marked acceleration in the demand for nuclear energy as a proven, reliable source of clean baseload power. COP28 committed to triple nuclear capacity by 2050, and globally, over 150 nuclear reactors are either under construction or planned.

The agreement reflects Microsoft’s ambition to become carbon-negative by 2030, but also to compensate for the surge in demand for electricity from its data centres, given the increased energy demands from AI.

Not surprisingly, the price of uranium ore has rocketed. This has been boosted following Russia’s invasion of Ukraine and western sanctions, and the price of uranium ore has almost doubled since 2022. This is because Russia plays a significant role in the multi-stage process of turning mined uranium into the fuel for a nuclear reactor. Russia is believed to control 22% of global uranium conversion capacity but 44% of enrichment capacity!

During 2024, President Biden signed into law the Prohibiting Russian Uranium Imports Act, although waivers are allowed until 2027 to ensure reactors can keep running. This has increased demand for non-Russian source nuclear fuel, but also raises the risk of Russia pre-emptively terminating supply commitments. Meanwhile, the US is monitoring whether imports of uranium from China are providing a back door for Russian material.

The demand uranium conversion supply imbalance looks set to remain, as additional production capacity will take time to come fully on stream.

Let’s hope there are no further nuclear accidents like those at Three Mile Island, Chernobyl, or Fukushima, or at any of the nuclear plants in the Ukrainian-Russian war zone. Beyond the risk to human life, such an event could seriously derail global net-zero ambitions.

What have we been watching?

Another good week for US equities, but ‘Sir Doom and Mrs Gloom’ continued to overshadow the UK market, as did the weakness of the oil majors. Brent oil remained weak despite the events in the Middle East and stimulus in China, but gold continued to strengthen. UK gilt yields ticked higher ahead of the October Budget as Chancellor Rachel Reeves is reported to be considering how the government’s fiscal rules are calculated to allow billions more in capital spending.

The situation in the Middle East continues to deteriorate. Israel appears jubilant about the progress of its offensive against Hezbollah, marked by the detonation of pagers and deadly airstrikes. Israel seems to be betting that Hezbollah will collapse, but it faces a well-armed and determined enemy, far more serious than Hamas in Gaza. Calls for a truce in Lebanon and Gaza are falling on deaf ears, and President Joe Biden has warned of the risk of an ‘all-out war.’

More sabre-rattling from Putin, who said that Russia would consider an attack from a non-nuclear state that was backed by a nuclear-armed one to be a ‘joint attack’, in what could be construed as a threat to use nuclear weapons in the war in Ukraine. China has called for calm, with reports President Xi Jinping has warned Putin against using nuclear weapons. Putin’s plan coincides with President Zelensky’s ‘victory plan’ presentation to Joe Biden. Meanwhile, Donald Trump has attacked Kyiv for ‘refusing to make a deal’ and derisively described President Zelensky as ‘probably the greatest salesman on Earth’ as every time he comes to the US he walks away with $60bn. Trump said’ what do you have left now/ The country is absolutely obliterated.’

America is planning to ban certain hardware and software made in China and Russia from cars, trucks, and buses in the US due to security risks. ‘Cars today have cameras, microphones, GPS tracking and other technologies connected to the internet, and it doesn’t take much imagination to understand how a foreign adversary with access to this information could pose a serious risk.’

---

 

In the UK, the ‘flash’ business activity PMI reading for September dropped from 53.8 to 52.9 with similar-sized declines across both manufacturing and services.

---

 

In Europe, the ‘flash’ business activity PMI reading for September fell into contraction territory at 48.9, the weakest level in eight months. Manufacturing dropped to 44.8 but services remained in expansion but dropped to 50.5.

---

 

The People’s Bank of China (PBoC) cut a number of key interest rates. The government will also lend to state owned firms to buy up excess housing stock. In addition, an equity support mechanism of $113bn is to be set up. The PBoC seems to be using the same tools to support the property sector and equity markets. Furthermore, the conclusion of a meeting by the Politburo resulted in a fiscal commitment to ensure that growth targets are met.

---

 

Brent oil held around $73 despite the deteriorating situation in the Middle East on media reports that Saudi Arabia is to drop its unofficial $100 a barrel price target and may increase oil production in December.

---

Finally, as Labour reviews UK defence spending, yet another challenge for the MoD. The cost of the ceremonial bearskins worn by the Guards has risen over the last year to £2,040 each, an increase of 30%. In addition, The People for the Ethical Treatment of Animals is calling for the use of fake fur instead, but the MoD has yet to find an alternative that can absorb water and keep its shape. Will the fur fly?

---

 

Read Last Week’s Alpha Bites – A World divided

Further information about Alpha Portfolio Management, our products and services, please visit www.alpha-pm.co.uk or email info@alpha-pm.co.uk. Alternatively, you can call us on 0117 203 3460.

This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.

You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the FCA.
Registered Office: 1 The Square, Temple Quay, Bristol, BS1 6DG. Registered in England No. 2489639
Copyright © 2024 Alpha Portfolio Management, All rights reserved

Trading name text

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.