Uranium Bull Market: Not Over Yet
Source: Market Oracle (4/13/08)
...Spot uranium is now at $71, which is much lower than the inflation-adjusted high of $143.51 reached back in 1978. I am using the U.S. government numbers which I believe are artificially low, so the real discount should be much higher. And the last time we had a uranium bull market we didn't have peak oil or the industrialization of Asia, so the fundamentals point to a much higher price...
1. The developing world will demand more energy.
As formerly poor agricultural nations like China and India modernize, the rapidly expanding middle class will acquire the same conveniences Western nations take for granted. They will buy a car, a cell phone, a computer, and a couple of televisions to boot. All of these items will require more energy per capita. While these needs can be met by burning coal or natural gas, smart nations are planning ahead.
China has announced its plans to build dozens of reactors and produce 150,000 megawatts of power from nuclear fission by 2050. China used to have energy to spare, but in 1993 the country ended its status as a net exporter of crude. Now it's the third largest importer. China is expected to import 47% of its oil this year and is projected to match the U.S. in petroleum imported per day by 2030. Will all that oil be available when it's needed?
Russia is currently building two reactors for India, with plans for four more at the same site. In addition, the U.S. agreed to sell India its nuclear power technology.
India is vulnerable to energy disruptions as 50% of its natural gas is imported. Meanwhile, the need for predictable power generation grows voraciously. The Indian Prime Minister Manmohan Singh reported that their GDP was projected to grow over 9% this year, just below China's rate of 11.5%.
Even Africa is joining the nuclear bandwagon. The continent is rich in uranium, with 18% of the world's known resources.
Many sub-Saharan countries have small or nonexistent petroleum resources and low electricity production. Since they don't have a large electricity grid, small localized reactors could solve many of their power issues. China, India, and Iran have offered to sell their nuclear technology to Africa in exchange for access to minerals. If this continent was able to develop their infrastructure in a large way, the impact on energy demand would be huge...
As uranium is a small percentage of the cost structure, the metal could increase in price substantially and still not change the affordability of the electricity. Spot uranium is now at $71, which is much lower than the inflation-adjusted high of $143.51 reached back in 1978. I am using the U.S. government numbers which I believe are artificially low, so the real discount should be much higher. As the last time we had a uranium bull market we didn't have peak oil or the industrialization of Asia, the fundamentals point to a much higher price...