Uranium: An Under-the-Radar Bull Market


"Demand for ready-to-use yellowcake already far outstrips supply. . .it has done so every year since 1989."

Uranium spot prices jumped another $2 Monday to settle at $51/lb (monthly contracts are trading closer to $44/lb). Sure, that's still a long way from their $136/lb peak set back in June 2007. But after a consistent downward slide since then, U3O8 prices seem to have bottomed, emerging from the downward spiral they've been on since last September.

It's just further evidence that nuclear power, once so despised it made the perfect long-running gag on "The Simpsons" is making a bit of a comeback. And why not? On the alt-energy playground, nuclear power is the beefiest kid around: an efficient, well-understood technology that works entirely independent of seasonal weather patterns. Plus, nuclear reactors don't emit an ounce of greenhouse gases, and in this emissions-obsessed culture, that makes fission a downright rock star.

While Americans might still have some reservations about Blinky the Three-Eyed Fish, the rest of the world has increasingly embraced nuclear power. France, for example, gets more than 87% of its electricity from nuclear, while Belgium and Sweden get 54% and 60%, respectively. And that market share is set to rise: The International Atomic Energy Agency recently projected that in the next 15 years, we'll see 70 new nuclear plants, which would almost double global capacity. As it is, over 40 reactors are currently under construction in 11 countries, including South Korea, Russia, Japan and China.

China, in particular, plans to heavily invest in nuclear power as part of its stimulus plans; already the country is building 11 new reactors, with another 98 proposed or in planning stages. China has also announced its intentions to stockpile uranium to ward off shortages - and as we've seen in base metals lately, when China decides to hoard, prices go skyward.

All this means good things for uranium, since you can't have nuclear power without nuclear fuel.

We've discussed these and other long-term fundamentals for uranium now and again here at HardAssetsInvestor, and even though prices have plummeted since 2007, those driving forces still remain in play. In short: Demand for ready-to-use yellowcake already far outstrips supply - indeed, it has done so every year since 1989—and the new global push for more reactors is only going to squeeze stockpiles further.

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