Trend Reversal in Uranium?


"Recycling 16,000 nuclear warheads is quite significant."

Uranium made a high of ~$150/LB in 2007, since then price has collapsed and struggled to gain any sort of positive price momentum. Now there appear to be several catalysts for a major trend reversal.

First and most interesting: Last week, USEC released a report that they have converted the equivalent of 16,000 nuclear warheads into usable fuel for nuclear plants. Those 16,000 nukes represent about 400 metric tons. They also said the program intends to convert 20,000 by 2013. That means they have already converted 80% of what Russian intends to return to the uranium market.

Even if you can't trust the target of 20,000, there is no denying that 16,000 nuclear warheads being recycled is quite significant. There are some disputes about the totals held by Russia, and they did say "the equivalent of", so some of the recycled uranium may already be from dismantled nukes. Nonetheless, this must be a significant percentage of what Russia could even possibly eliminate. Following is an estimate of global nuclear weapon totals:

Global nuclear weapon totals

China will be a major driver of demand, with estimates of its demand expanding ~5x by 2020. Then, China is expected to import 5,000 metric tons of uranium. An expansion to 25,000+ tons imported would be a major boon for miners. In addition, Obama is a nuclear-energy supporter and the U.S. could add to the demand for uranium.

Finally, the underperformance relative to other hard assets since the market collapse cannot last forever. In the short term, there can be divergences; but I believe that, aside from major fundamental market changes, hard assets should move in tandem. On the chart, $40/lb. has served as major support for the spot price; and, if it can break out of the $55/lb. level, who knows when the momentum would stop.

3-year uranium

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