How to Play Uranium’s Coming Supply Shortage
Despite all of the critics out there, uranium prices may be heading higher sooner than most people think...
Cameco (NYSE: CCJ), the world’s third-largest uranium producer, says a supply shortage is set to hit full-on by the end of 2013 and prices should turn around for the next several years.
What exactly is happening?
Well, first and foremost, a treaty from the Cold War between Russia and the United States, that provides 24 million pounds of uranium per year to the market from decommissioned nuclear weapons, will expire at the end of 2013.
This treaty alone represents 16% of total uranium demand each year. It’s a significant amount to say the least.
But it’s not the only reason uranium prices are set to head higher...
With uranium at about $47 per pound, there’s not much incentive for companies to keep producing uranium or build new mines.
As the Wall Street Journal reports, BHP Billiton (NYSE: BHP) made the decision last month to cut back a “$30-billion expansion of it’s Olympic Dam mine and sell its Yeelirrie uranium deposit in Western Australia.”
Paladin Energy (TSE: PDN) cut its production outlook for the second time this year. Cameco also reduced its supply outlook for 2012 earlier in the year because the prices simply continue to fall.
But in the advent of Japan’s Fukushima nuclear disaster, it makes sense that uranium prices have taken a hit.
They’re down 30% since tragedy struck the island nation last March. Looking back even further, after hitting a near all-time high in 2007, prices have plummeted 58%.
Over the next few months, I wouldn’t be surprised to see prices scale back a little bit further with countries such as Germany, Japan, France and Italy all rethinking their future nuclear goals.
However, who’s to say these countries won’t change their tune about nuclear energy in the coming years? This could easily be a knee-jerk reaction.
What’s more, there are plenty of other countries filling the gap.
India just announced that it wants to increase its nuclear power generation capacity nearly 200% over the next 25 years.
In China, some 26 reactors are under construction, with more likely to come this year. China also announced it will increase it nuclear generation capacity six-fold by 2020 to 80 gigawatts.
In Russia, 10 reactors are being built as I write, with 14 more in the planning phase.
According to the World Nuclear Association, there are over 60 reactors under construction in 13 countries. Ninety-five new reactors are expected to be built over the next decade.
Bottom line: While uranium prices maybe aren’t set to explode higher tomorrow, they are destined to turn around sooner than critics think.
And you can take advantage of the price hike by starting to build your positions today in premium uranium mining companies and ETFs.
Here are just two to consider right now:
- Cameco (NYSE: CCJ). As I mentioned earlier, it’s the third-largest uranium producer in the world, but it’s also the largest publicly traded producer. Cameco purchased BHP’s Yeelirrie deposit and it’s ready for the coming price hike. Shares have declined 57% in the past five years and are just waiting for uranium prices to head back up.
- Another great way to play the space is the Global X Uranium ETF (NYSE: URA). It tracks the Solactive Global Uranium Index, and holds about 25 different uranium-mining stocks. It’s down 55% in the last two years.
It’s not easy to invest in plays that have seen such price declines. But demand for uranium is only set to head higher in the coming years. And there may be no better time than right now to get ready for the next price hike.