Looks Like Uranium is Poised to Bounce Back

Is the uranium bear market about to reverse course? That looks increasingly likely as the industry approaches a tipping point of increased demand and constrained supply.

The situation has taken a long time to manifest. Following a drop in uranium spot prices from highs above US $78/lb of U3O8 in 2011 before the Fukishima Daiichi nuclear accident to below US $20/lb in 2016, a lot of production and exploration was halted.

Until now, suppliers and consumers have relied instead on stockpiled inventory. Uranium isn’t like most commodities traded on an organized exchange, as most deals are done directly between the buyer and seller on long-term contracts instead.

With the price of uranium so low, contracts have been running out and not being renewed as plants are going through reserves or buying directly using spot prices. At the same time, uranium miners like Cameco Corporation (TSX:CCO) have bided their time waiting for spot prices to increase so that long-term contracted mining is profitable once again.

Today, a lack of mining and focus on depleting inventory reserves means that the supply of uranium is rapidly decreasing. At the same time, companies have taken notice that the demand for uranium has started to pick up.

While countries like Germany are talking about shutting down reactors, increased interest from China, India and Saudi Arabia more than makes up the difference. According to the World Nuclear Association, there are currently 450 nuclear power reactors in operation with another 50 under construction. In addition, there are also 100 more planned reactors and 300 proposed reactors in total.

Another boost for sector demand came from US President Donald Trump’s decision on Section 232 of the Trade Expansion Act not to impose restrictions on the imports of foreign uranium. The decision makes sense considering the US has a minimal amount of domestic uranium compared to the biggest producers of Kazakhstan, Canada, and Australia. It also makes companies like Canada-based Cameco and Fission UraniumCorp. (TSX:FCU) more attractive as North American producers.

Putting everything together, it’s clear to see why companies in the uranium sector feel a shifting sentiment. Cameco noted improvements in its investor report, and Australia-based Paladin Energy Ltd. (OTC:PALAF) plans to restart the Langer Heinrich mine in Namibia within the next two years.

At the same time, renewed pushes for more sustainable energy sources have brought nuclear power back to the discussion table. Uranium prices might be at a low right now, but a combination of supply and demand factors should have investors keeping their eye on the market. Sooner or later, something’s got to give.


FULL DISCLOSURE: Fission Uranium is a client of Stockhouse Publishing.