Uranium: The Most Explosive Opportunity
Left for dead for quite some time, uranium is making quite a comeback.
You could say it’s been explosive.
In fact, demand is just now picking up, as Japan paves the way for its nuclear plants to restart operations. The country plans to bring back seven reactors by March 2017 and another 12 by the spring of 2018.
Aside from Japan, though, demand for nuclear power is back in a big way. Demand is also picking up in Asia, particularly in India and China, which already has a high consumption rate for electricity with such a large population.
A total of 61 new reactors are being built with close to 150 in planning stages throughout the world. It’s also surging on hopes that Donald Trump will be much more willing to invest in nuclear power as well. As a matter of fact, Cameco CEO Tim Gitzel, as quoted by CNN, also noted, "we've heard some encouraging words from the Trump team on nuclear power. We're optimistic that will help our nuclear industry."
Better yet, a 10% production cut from Kazakhstan’s state-owned uranium producer may have put a floor under prices, as well indicating that producers are finally serious about correcting what has been an oversupplied market.
State-owned Kazatomprom noted that 2017 production would be reduced by 2,000 metric tons — equivalent to about 3% of the total global output.
But there’s an even bigger catalyst ahead. According to OilPrice.com:
"While the spot prices are rising – up 20% in the past four weeks - but still low, they are largely irrelevant because 90% of the market is sold at long-term contract prices. Some contracts are being written at prices of more than US $40 per pound—a figure that is much higher than spot prices.
Some may fear the spot market, which they see every week, but the actual market on which sales are based is long-term contracts, and it’s not nearly as transparent as the spot market. Spot prices are reported by Tradetech and UXC without regard for the amount of material being moved They can be derived from transactions involving as little as 10,000 pounds of uranium. An entire market’s spot price is being based on this, skewing the real picture. The key is to focus on the bigger, long-term contracts for upwards of $40 per pound because these are what will drive the industry in the years to come.
Where it gets really radioactive is when you consider that these contracts are now coming to a close, and uranium is poised to become a very hot commodity once again. Major American and European nuclear reactors are coming off supply in 2017 and 2018, and will be looking for long-term contracts.”
Those catalysts have surely spread around the sector. Over the last few weeks:
- Cameco (CCJ) ran from $10.50 to a high of $13.36
- The Global X Uranium ETF (URA) ran from $14.50 to $18
- Uranium Resources (URRE) jumped from $1.75 to a high of $4
- Uranium Energy Corporation (UEC) exploded from $1.10 to $1.80
Traders are betting the run is far from over. In fact, in recent months, the price of uranium has jumped from an $18 low to $22.50 with a likely move higher.
In short, uranium could become one of the hottest, dare I say most explosive opportunity on the markets, aside from gold, aluminum and copper.
Here’s what else we must understand.
While the 2011 Fukushima disaster devastate uranium prices, sending it from $79 to less than $20, sentiment has improved. At the end of the day, many countries will still rely on nuclear energy as the clean sources and push prices higher.