RE:The spot price movements in short term vs 60$/lb needed! Napalm1 : I would agree with you that the uranium spot market is illiquid. I would agree with you that most of the uranium production is sold under long term contract.
The spot market was only a place to “dump” spare mine production for some spare usd or a place where utilities could dispose of surplus supply because of reduced base loading or government decisions that adversely affected the nuclear industry( reactor shutdown).
There are some 450 reactors in the world…give or take a few. Lets look at 2 cases:
Suppose for a moment, that I am the director of operations for the Chinese nuclear power grid. China has say 50 reactors. I have just been made aware that a US hedge fund has just purchased 3M lbs of U308. Why would I care if I knew that the Chinese government owned the means of u308 supply via mine finances/construction/operations agreements with Namibia? The Chinese government owns the source of supply.
Suppose for a moment, that I am the director of operations for the US nuclear power grid. I have 100 reactors. I know all the reactors have long term contracts till the end of operational live. Why would I care if a US hedge fund has just purchased 3M lbs of U308?
What are the events in the world that might change the supply/demand of u308?
GLTA
RFguy
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Napalm1 - (3/4/2021 11:39:28 AM) The spot price movements in short term vs 60$/lb needed! Hi everyone,
If I may.
First. Stop looking at short term movements. Those short term moves don't matter, the final upside is a multi-bagger from here for many uranium shares regardless of short term fluctuations.
The spot market is a very iliquide market (not like the gold, silver, oil, copper market). Only a few participants. The spot will move up when those few participants move from transactions without physical delivery to transaction with physical delivery.
Look at the bigger picture:
- Uranium price has to go to 60$/lb in the coming years (before 2024!!) to have a small chance get the global uranium supply and demand in equilibrium in 2025/2026
- Yellow Cake is going to take at least 4,5 Mlb of U3O8 out the market in the near term (phase2, announced by Yellow Cake)
- Uranium Participation will most probably do something similar in the coming weeks/months
- Cameco, Orano, Kazatomprom, Peninsula Energy, ... need to buy U3O8 in the market the coming weeks/months;
- some investments funds are preparing the purchase of U3O8 in the spotmarket (phase 3, like in 2004/2005)
- knowing the above, hypothetical U3O8 inventories are now less available for a transaction (Why selling U3O8 at 30$/lb now, when you know you will need to buy U3O8 back later at 60$/lb?!!)
Those temporary fluctuations of the spot price due to small back and forth transactions in the spotmarket setting the spotprice without physical delivery at the price levels of today are about to end due to big U3O8 buying in the near future WITH PHYSICAL DELIVERY!!
Second. The main part of U3O8 supply goes through LT contracts and not through spotmarket transactions. But the main part of investors only have access to the spotprice, and so only focus on that spotprice. By consequence the market will be taken by surprise when the first new contracts at much higher LT price will be announced in a future financial statement of a producer or well advanced developer.
Buy and hold, and enjoy the ride.
Don't try to swingtrade uranium stocks, because you will be taken by surprise.
Cheers