The Rise Of Uranium – Commodity Piece
How To Play It?
In 2018, uranium assets were widely considered to be stranded assets. Following the 2011 Japanese earthquake and tsunami, utilities closed nearly one-third of all nuclear power reactors. At precisely the wrong time, Kazakhstan (responding to high prices between 2000 and 2010) brought on almost 20 mm lbs of low-cost in-situ uranium production. The market shifted into severe surplus, and prices collapsed nearly 90%, from $136 to $18.56 per pound between 2011 and 2018.
Few investors thought uranium companies had any future whatsoever and even fewer predicted they would become some of the best-performing stocks in the market. Since the end of 2018, Cameco and Kazatomprom have advanced four-fold, compared with 77% for natural resource stocks broadly, 97% for the S&P 500, and 161% for the tech-heavy Nasdaq composite. On October 29th, 2023, Bloomberg led with the bold headline: “Hedge Funds Pile Into Uranium Stocks Poised for Dramatic Gains.”
Recently, Uranium U3O8 crossed the $100 mark.
And Sprott physical uranium trust ($U.UN) has reached levels unseen since 2007.
For those that missed our first 2 Uranium articles, we suggest that you go through them to understand the history and fundamental driving factors of Uranium. The first article titled “Uranium: THE Asset Of This Decade” can be found here and the second article titled “Uranium’s Little Known History” can be found here.
Supply Shortage
Kazakhstan is a global powerhouse for uranium production, producing 43% of the world supply, mainly through Kazatomprom — majority owned by the state sovereign wealth fund — and its joint venture partners.
The Kazakh mining company responsible for 23% of global output warned earlier this month that its production for 2024 would be lower than expected because of shortages of sulphuric acid, which is essential to extract uranium from ore. It also stated that its production plans for the next year could also take a hit. This provides further supply constraints in an already tight market.
Uranium Price Is Not An Issue For Utilities
Although supply will ultimately undo the uranium rally at some point in the future, it will take years to ramp up, given the chronic underinvestment in the industry. Currently, supply deficit remains a primary challenge. As a result, prices are likely to move much higher in the coming years.
Uranium makes up a small proportion of the overall cost for nuclear power given how expensive reactors are to build, meaning that utilities’ concern is less about the price and more about the availability of nuclear fuel.
Uranium demand is highly price inelastic. Uranium makes up a small proportion of the overall cost for nuclear power given how expensive reactors are to build. Unlike in a coal or natural gas power plant, nuclear reactors are much more sensitive to capital costs, with fuel making up only 5% of total expenditures. Particularly once a reactor is running, the operator is willing to pay almost any price for the fuel necessary to keep it running. Furthermore, regulated utilities own most nuclear reactors and can pass fuel costs to ratepayers.
How To Play It?
There are a few ways to participate in uranium, namely through spot (such as $U.UN on TSX or $SRUUF for US investors), uranium miners ETF, and individual uranium names. While we will be analyzing spot uranium prices, our main primary medium of play will be through uranium miners ETF and individual uranium names. In this article, we’ll cover the 3 main uranium miners ETF ($URA, $URNM and $URNJ) and in the subsequent article we’ll look at attractive individual uranium names.
Global X Uranium ETF ($URA)
$URA is currently under the $31.45 resistance level, while still maintaining the uptrend that began in June 2023. However, underlying weakness seems to be developing as the recent runup has put in 2 drives of bearish RSI divergence on the weekly time frame (higher highs on price and lower highs on RSI). In the event of a pullback, you can add this name at the $23.89 and $18.33 support levels. IF $URA breaks through the $31.45 level with a confirmed close then you can either consider adding the name at breakout or preferably during the retest.
Sprott Uranium Miners ETF ($URNM)
Similar to $URA, $URNM has also maintained its uptrend line but has formed a bearish RSI divergence on the weekly time frame (higher highs on price and lower highs on RSI). Areas of interest in the event of a pullback are $50.88 (price likely goes lower than this level during the pullback but still a good DCA level), $42.07 and $35.62.
Remember, uranium can be very volatile so it’s better to wait for meaningful pullbacks to enter and to spread out the buying levels in case the price corrects deeper than expected.
In the next section, our paid members will get the setup for uranium junior miners $URNJ (a higher beta play on uranium and we believe has BIG upside this cycle) and the uranium Cycles Forecast for Q1 2024, which will really help time entries.