Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Uranium Bull Market

Commodities / Uranium Jul 30, 2011 - 07:47 AM GMT

By: Zeal_LLC

Commodities

Best Financial Markets Analysis ArticleNuclear power has been a hot topic of recent.  And as a result, the price action of its input commodity has been quite schizophrenic.  Investors and speculators are in a state of great wonderment over what to expect from this intriguing mineral that is mined for energy.

Based on its core strategic fundamentals, investors ought to be wildly bullish on uranium’s future.  But with a veil of uncertainty cast over it thanks to the tragic Fukushima disaster, should we be looking at the future differently?  Of course only time will tell how things play out.  But based on cold-hard rationality, my money is on a future where nuclear power is an indispensible part of the world’s energy infrastructure.


This rationality is based on the fact that electricity demand is expected to increase by about 75% over the next 20 or so years.  With this soaring demand, only economically-scalable sources of energy will suffice.  For a variety of reasons renewable energy does not have the right combination of economics and scalability in today’s environment.  And while coal and natural gas will continue to be big players, the world’s push towards clean energy pits a lot of objections to these sources.

Nuclear energy on the other hand is scalable, economical, sustainable, reliable, and even with such black-swan events as Chernobyl and Fukushima, it is clean.  It already accounts for about 14% of the world’s electricity, and most of the world’s utilities/governments realize that nuclear power is integral to meeting future energy needs.

For these reasons and more uranium, the commodity that fuels nuclear power, is in the midst of an incredibly-powerful bull market.  And based on the economic imbalance of the uranium market, this bull ought to plow forward for many years to come.

Mine production is of course the main supplier of uranium for the world’s 440 operating nuclear reactors.  And over the last decade or so the miners have done a fine job increasing production volume.  In fact, according to the World Nuclear Association (WNA) mine production had increased by an impressive 51% from 2003 to 2010, to nearly 54k metric tons.  But amazingly this current rate of production is a staggering 15k metric tons short of what is required to power the reactors in 2011.

Filling this giant gap is supply from military and commercial stockpiles.  But while this stockpile supply has been reliable, its outlook is bleak.  With programs like “Megatons to Megawatts”, in which Russia converts highly-enriched uranium from dismantled warheads into nuclear fuel, coming to an end in 2013, along with the dwindling of other stockpile sources, consumers are soon to find themselves in a pinch.

And this pinch will be even more painful as the competition for this resource grows.  Per the WNA’s most recent assessment, there are 558 nuclear reactors currently under construction, planned, or proposed.  And with these new reactors expected to come online at a much faster pace than those that are decommissioned, uranium’s supply crunch is looking quite ominous.

Needless to say growing demand, decreasing stockpiles, and mine-production shortfalls have not gone unnoticed.  And for these reasons and more, uranium prices have skyrocketed over the course of its bull.  But as you can see in this chart, uranium’s uptrend has been far from orderly.

After years of reliance on the liquidation of stockpiled inventories, uranium consumers had grown complacent.  Competition for obtaining this mineral was a non-issue, and they didn’t see any reason to fret about supply disruptions and/or higher prices.  But as you can see, beginning in the latter half of 2003 reality smacked this industry in the face.

From 2003 to mid-2007 uranium was the hottest commodity in all the markets.  And when folks finally came to the realization that a supply deficit was imminent, prices went parabolic.  Uranium’s breathtaking surge took prices from their lows just over $7 per pound in December 2000 to $136 in June 2007, a staggering 1815% gain.

Parabolas are of course unsustainable, regardless of how bullish fundamentals are.  Uranium was way overbought at its 2007 apex, and the downside action to rebalance sentiment was bound to be messy.  It needed to correct, and indeed the resulting correction was as fast and furious to the downside as uranium had been on the upside.

After a year or so of aggressive selling, uranium appeared to find its bottom.  But as with nearly every asset, it got sucked into the universal selloff spawned by the infamous stock panic.  Stock-panic splash damage dragged uranium prices even lower.  And thanks to global economic worries that reverberated across the nuclear-power industry, uranium didn’t see its bottom until early 2010.  By the time the dust settled, uranium was off 71% from its high.

Uranium had finally found support at the $40 level.  And while this was a whopping $96 off its high, it was still 450%+ above its lows.  The bull was still intact.  After a rough few years folks realized that the need for nuclear energy had not diminished, nor did uranium’s fundamentals.  Demand was still rising, stockpiles had three more years of drawdowns, and the miners were still way behind the eight ball.

In mid-2010 uranium caught a serious bid, one that transpired into a powerful upleg that gained 75%.  And by February 2011 prices had climbed back to $70, a level that hadn’t been seen for nearly three years.  But as is necessary, and healthy, a selloff was due in order to rebalance sentiment.

Uranium prices took a little breather into March, but this breather has turned into a big blow thanks to a catastrophic series of events on March 11th.  Following one of the biggest earthquakes ever recorded, a giant tsunami pounded Japan’s Fukushima-1 nuclear power plant.  Unfortunately this plant’s seawall was only designed to withstand a tsunami about a third the size of the one that hit it.  And this 43-foot-high beast flooded the entire plant, incapacitating its cooling systems and ultimately leading to a full meltdown in three of its six reactors.

This disaster, which is still ongoing, has certainly given a reality check to the nuclear-power industry.  While the operation of a nuclear power plant is about as clean as you can get from an environmental standpoint, the risk of a failure (core meltdown) and its resulting widespread damage is always a concern.  And though a meltdown is an incredibly low-probability event, what transpired at Fukushima makes it all too real.

The result of such a disaster is heated deliberations on the future of nuclear power.  And you may recall a similar situation in the mid-1980s following the aftermath of the Chernobyl disaster in Ukraine.  Many were outspoken about completely shutting down commercial nuclear power.

The nuclear-power industry of course rebounded from Chernobyl, but this disaster had clearly damaged its growth prospects.  As an example, right around the time of this meltdown Italy was rolling out a plan to build out nuclear power.  But even though it was determined that Chernobyl’s reactor failure was a result of shoddy workmanship and insufficient safety procedures, Italy fearfully shelved its nuclear program.  Provocatively just this year Italy was in the process of revisiting nuclear power.  But thanks to Fukushima, it is again off the table.

And Italy isn’t the only country allowing Japan’s disaster to alter its policy on nuclear.  Switzerland, a country that uses nuclear to power 40% of its electricity needs, recently announced it will be decommissioning all of its nuclear power plants by 2034.  Germany is also planning on phasing out nuclear thanks to Fukushima.  This major European powerhouse currently gets 23% of its electricity from nuclear, but will wipe this source by 2022.

News like this and more will no doubt impact and remold the future of nuclear power.  Even the Ux Consulting Company (UxC), one of the nuclear industry’s premier market/consulting houses, acknowledges that Fukushima has notably impacted future nuclear-power growth.  And for this reason uranium’s ongoing correction has likely overshot to the downside, bringing prices back down towards $50.

But though it may seem like the future of nuclear power is in jeopardy and that uranium prices are in a death spiral, this couldn’t be farther from the truth.  Though tragic, Fukushima will serve to improve safety standards going forward.  And despite the speed bump that this disaster’s aftereffects will have on the global nuclear buildout, nuclear power will still be a vital component of today’s and tomorrow’s electricity needs.

Even with the notable impact of Fukushima, UxC still foresees a steady construction of nuclear reactors in the coming decades.  While there might be some delays directly linked to Fukushima, such as what we are seeing in a next-generation reactor under construction in France, most reactors will still be built.  Even before Fukushima the majority of existing construction projects and those in the pipeline belonged to China, Russia, India, and South Korea.  And these countries are expected to proceed as planned.

The world needs nuclear power, and regardless of what’s going on in Germany, Switzerland, Italy, and even the US, nuclear power will increase and so will uranium demand.  In fact, UxC anticipates that even with the Fukushima effect we will still see a double in uranium demand by 2030.

With this Japan disaster still so fresh on people’s minds, uranium may indeed still have some downside in the interim.  But on balance it still ought to trend upwards as fundamentals overtake the current negative sentiment.  In which case there are still excellent opportunities for investors to cash in on this bull.

There are a couple of primary ways to play uranium.  First is via futures, vehicles that are still relatively new to the uranium scene.  Only in 2007 did the NYMEX introduce off-exchange-traded uranium futures.  These contracts are in cooperation with UxC, in which UxC provides month-end spot U3O8 prices.

Futures trading is of course designed for more sophisticated traders with a higher appetite for risk, so most investors prefer stocks.  But even uranium stocks are not for the risk-averse.  Ask any investor who’s put capital into these stocks and you’ll get consensus that this realm comes with gut-wrenching volatility.

When uranium prices were going parabolic, so were uranium-mining stocks.  In fact, before uranium gave up its ghost in 2007 there was a bit of a mania to grab any company that had a stake in a uranium deposit.  Most of these companies weren’t even close to production and had yet to prove up their deposits to economic feasibility.  But that didn’t matter.  And most of these stocks delivered legendary gains, positively leveraging uranium’s own gains.

But once the bottom fell out of uranium, these stocks got crushed.  Uranium’s sharp multi-year downtrend decimated the companies scouring the earth for this mineral.  Many didn’t survive, and many of those that did shifted gears in their search for mineral wealth.  With uranium in the depths of despair, they decided to look for something with more promise like gold, silver, copper, or even rare earths.

This uranium-stock bludgeoning was unfortunate considering the dire need to increase mine production going forward.  With stockpiles dwindling, demand not letting up, and mature uranium mines depleting, miners have a lot of weight on their shoulders to get the next generation of mines into production.

Fortunately uranium prices are still plenty high enough to entice mining companies to discover and develop uranium deposits.  And investors still have ample opportunity to capitalize on the fortunes of the elite companies that will be successful in doing so.  But identifying high-potential uranium stocks is easier said than done.

Interestingly there is plenty of uranium in the ground, it is not a rare mineral.  In fact, uranium is as common in the earth’s crust as tin and zinc.  Higher prices also serve to make lower-grade deposits that may not have been economical in the past economical today.  For these reasons and others, mining companies that own uranium deposits are not hard to come by.

The biggest challenge that miners are faced with is not discovery, but rather development.  Since uranium is toxic by nature, proposed mining operations are subject to substantial regulatory oversight.  These mines usually need specialty permitting from a country’s nuclear agency for such things as tailings disposal, processing, and transportation.  And overall this makes the process of developing a uranium mine quite cumbersome from a time and cost perspective.

For these reasons and more, most uranium companies will fail.  And I suspect the road will be even tougher in the interim considering all the negative sentiment currently surrounding nuclear.  These mining companies are likely to encounter a much leaner capital-raising environment until some of the fear abates.

Provocatively these negative factors are quite bullish for uranium’s long-term fundamental picture.  The major challenges miners are faced with will only allow them to ramp up supply so fast.  And this is apparent when you look at the universe of uranium stocks.  There aren’t many projects in the development pipeline.

As investors we need to be selective in the stocks we choose.  There aren’t many producers to choose from, emerging producers are few and far between, and explorers with a combination of high-potential deposits and managerial know-how to drive development are even more rare.  But if you do find these stocks, huge gains are likely to be had.  And considering the carnage in this sector from the events earlier this year, it is currently a bargain-hunter’s paradise.

At Zeal we’re taking advantage of the rotten sentiment towards nuclear, and in our newsletters we’ve recently taken positions in some high-probability-for-success uranium stocks.  We’ve also been deploying capital into other high-potential commodities stocks, and will continue to layer in trades for what we believe to be an upcoming autumn rally.  To see our trades and get cutting-edge market analysis, subscribe today to our weekly and/or monthly newsletters.

The bottom line is uranium’s bull market has so far exhibited a series of extreme highs and lows, with the highs taking this mineral on an uptrend that has delivered spectacular gains.  And while the recent tragic events at Fukushima have temporarily marred the nuclear industry, and thus uranium prices, nuclear power will still be a vital source of today’s and tomorrow’s energy needs.

As a result folks must not lose sight of uranium’s wildly-bullish fundamentals.  Even with the Fukushima effect, demand is expected to grow at a rapid pace.  And because supply from both the mining and stockpile fronts is expected to struggle to meet this demand, uranium prices should continue to rise.  Investors can play this imbalance by buying quality stocks that are currently out of favor.  Contrarian plays like this typically lead to huge gains.

By Scott Wright

So how can you profit from this information? We publish an acclaimed monthly newsletter, Zeal Intelligence , that details exactly what we are doing in terms of actual stock and options trading based on all the lessons we have learned in our market research as well as provides in-depth market analysis and commentary. Please consider joining us each month at … www.zealllc.com/subscribe.htm

Thoughts, comments, or flames? Fire away at scottq@zealllc.com . Depending on the volume of feedback I may not have time to respond personally, but I will read all messages. Thanks!

Copyright 2000 - 2011 Zeal Research ( www.ZealLLC.com )

Zeal_LLC Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in