A reader wrote in to ask if I have any hot picks in the uranium space. There are, in fact, two uranium plays on my Watch List. But I’m not ready to buy either, so I won’t name them here.
I remain a uranium bull, but prices have remained lower than I thought for longer than I thought. Have a look…
This chart reminds me of the old adage: “Markets can remain irrational longer than one can remain solvent.”
That speculative peak in 2007-2008 was clearly not sustainable. (It reminds me of Bitcoin in 2017.) But there were good reasons for it. Oil prices were rising. Secondary uranium supplies—decommissioned nuclear warheads—were dwindling. Even members of the Green movement were realizing that nuclear energy is a lot more eco-friendly than coal or oil. So, it wasn’t surprising to see uranium prices rebounding in 2011, after the previous mania cooled.
Then the Fukushima nuclear disaster hit. Uranium prices have been on an irregular slide ever since. Adjusted for inflation, prices are almost back to where they were in the early 2000s, when the world woke up to the fact that it needs nuclear power and there wasn’t much uranium being produced. The slide since Fukushima isn’t just because of the scare. Japan shut all its reactors down and started selling its now-excess uranium supplies. The country is restarting some of its plants, but this has been a slow process. This has created a new, lasting secondary uranium supply that has kept prices under pressure. The question then became: how long would this last?
My team and I back at Casey Research did the math on this just over a year ago, and we projected that demand could start exceeding supply and prices start rising by the end of 2017. One or more of our assumptions was clearly off. The market continues trading sideways.
If that changes in the near term, we won’t have been off by much. If so, speculators who buy into great uranium plays now will be very happy in short order. But I can’t honestly tell you that I’m sure this is how it will go.
- It’s possible that Japan could decide not to restart more reactors and sell more uranium.
- It’s possible that China will slow down or cancel some of its nuclear power plans.
- Other countries continue trying to move away from nuclear power since Fukushima.
- Some countries that were considering new nuclear plants might decide to go with a solar/industrial battery setup instead, now that test projects big enough to power a town have been successful.
- There could—and this would be very bad—be another accident.
Now don’t get me wrong—I’m not throwing in the towel here. I’m just trying to make it clear that, as Rick Rule often says, there’s very good reason not to confuse “inevitable” with “imminent” in this market.
Cutting to the chase, do I think uranium is down for the count?
No.
Nor would I sell stocks in great uranium companies if I owned any.
I do think the world will eventually abandon its current nuclear technology as a source of power, but that will take decades. There is no substitute for uranium fuel at many absolutely essential power plants today, and that will be the case for years to come.
But it’s possible that uranium prices will languish for another year… maybe even two. I want to see solid data showing stable trends of demand exceeding supply before I start buying again.
