One of the world’s leading commodities and power consultant groups, CRU, warned last month of uranium prices set to hit record highs. It sees the nuclear reactor fuel pushed higher during a decade-long bull market fueled by surging emerging market demand.
CRU’s Philip Macoun and Ian Hiscock forecasted that demand for uranium would outstrip supply every year for the next decade. They believe this will lead to price spikes above the previous 2007 record of $136 a pound.
For decades, the uranium industry experienced low investment and low prices. But Macoun and Hiscock say that in the next five years, we’re “looking at a period of very high activity for the nuclear power market and for uranium.”
And really, that upwards activity looks strong for longer than that.
After all, over one hundred new nuclear reactors are expected to come online worldwide over the next decade. China will account for half, with India and Russia aggressively pursing plans as well.
China goes nuclear
China has the most aggressive nuclear power plan, as it pushes to get 15% of its power from renewable sources by 2020. The World Nuclear Association says the country has plans to construct as many as 187 reactors to add to the 13 it already has.
In fact, China is expected to raise its 2020 nuclear power goal to 86 gigawatts, or 5% of its power generation. Currently, the energy source provides only 2%.
China National Nuclear Corporation(CNNC), the country’s largest nuclear power company, embodies this trend. It plans to invest $121.5 billion in such projects by 2020.
CNNC also expects total nuclear power plant investment to hit about $76 billion by 2015. That will result in 40 gigawatts of nuclear energy available nationwide.
This huge build-out requires a lot of uranium to fire up those plants.
CRU forecasts uranium demand quadrupling in the next 10 years. And by 2030, according to CRU, China will surpass the U.S. as the world’s largest uranium consumer.
The World Nuclear Association agrees. It predicts that Chinese demand for uranium will reach 44 million pounds annually by 2020.
On the downside, domestic supply will only be at five million pounds a year at that point. But that problem has investment opportunity written all over it.
Uranium supplies expected to grow… but not enough
Due to this new demand, industry consultants expect the global uranium market to grow from about 190 million pounds to 247 million pounds in 2020.
Secondary uranium sources – such as governments’ conversion of explosive-grade to electricity-grade uranium – should start declining from near 26% of total uranium supplies. That’s around 48 million pounds, but it will likely shrink to 24 million pounds, or 13% of total uranium supplies, by 2020.
That all suggests a 6% annual demand growth from mined sources over the next decade. But after years of underinvestment in the industry, supply will struggle to keep up.
One of the world’s largest uranium producers, Canada’s Cameco(NYSE: CCJ), estimates that 18% of total supply over the next 10 years has to come from new sources.
With that in mind, China has aggressively pursued long-term contracts for uranium. In fact, industry participants blame the nation for driving spot prices so much higher.
Uranium prices rallied 75% in the past eight months to a recent 35-month high of $73 a pound.
Uranium companies that stand to profit
This very bullish scenario is, of course, good for companies that produce uranium.
- The aforementioned Cameco can certainly expect good times ahead. And the same goes for global mining giant Rio TintoADR (NYSE: RIO).
- But the safest way to play uranium’s rise is through Global X Uranium (NYSE: URA). The ETF’s portfolio consists of 24 uranium companies. It has the most holdings in Cameco, Uranium One(TSX: T.UUU) and Paladin Energy(TSX: T.PDN).
- Investors can also play uranium directly through investment holding company Uranium Participation (TSX: T.U). This Canadian firm invests all of its assets directly into uranium, either in the form of uranium oxide or uranium hexafluoride.
All of these uranium investments will perform well in the bullish decade ahead.
Disclosure: The author does not hold positions in any of the stocks mentioned