The Quick and Dirty on Uranium

World Nuclear News reported last month:

Unit 2 of the Sanmen nuclear power plant in China has received regulatory approval for fuel loading, China National Nuclear Corporation (CNNC) announced today. Unit 1 of the plant was connected to the grid on 30 June, becoming the world’s first AP1000 to achieve grid connection and power generation.

China’s nuclear ‘switch-on’ has officially started!

When we started talking about uranium in May, these reactors were delayed for safety reasons. So, aside from the wide-spread oversupply concerns, the market wasn’t taking uranium seriously at the time.

That’s changed.

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China wants to run 58 gigawatts of nuclear capacity by the end of 2020. But its timeline could slip out to 2022. The pace of its planned nuclear constructions has slowed. That said, with 20 under construction, the country now has 41 nuclear power reactors in operation. When these reactors are ‘switched on’, demand for uranium should skyrocket.

China will need a lot of uranium in the future!

But is now the time to buy uranium stocks?

The story that matters for uranium

China ― at some point ― WILL need to buy A TRUCK LOAD of uranium for its nuclear reactors. The country doesn’t have enough supply, which is why I’m watching the story closely.

Take a look at uranium’s monthly chart:

Graph of Uranium Stocks

Source: tradingview.com

[Click to open in a new window]

The uranium market has surged to re-test last year’s high, thanks to the large supply cuts and US tariff rumours. That’s why traders are becoming positive towards yellow cake today. But, the market is still oversupplied and China’s in no rush to switch on its reactors. It took years to switch on its first two reactors. That means, uranium may find it difficult to push through upper resistance shown by the pink horizontal lines.

Look, I could be wrong…

Uranium could turn out to be a supply story. That’s what happened with zinc in late-2015. We have seen massive supply cuts, after all. Mining Review reported on 30 July:

‘Canadian uranium major Cameco has announced that it will not restart production at its McArthur River and Key Lake operations and that it would instead indefinitely suspended uranium production from the operations in bid to improve pricing in the face of rock-bottom prices caused by a global oversupply.

‘Cameco initially said in November 2017 that it was suspending operations at McArthur River mine, the world’s largest producing uranium mine, for 10 months starting at the end of January 2018, in a bid to cut approximately 15 -18 million pounds of uranium during 2018. 

‘Bloomberg quoted Cormark Securities analyst Tyron Breytenbach as saying that, spot prices could jump to between $28 and $30 a pound in the short term helped by Cameco’s shutdown as well as financial entities buying up supplies and China’s reactor buildout.

‘In combination with the forecast in a nuclear revival, the long-term outlook for uranium producers and developers looks strong.

Indeed, if you’re keen to buy uranium stocks for the inevitable comeback, go ahead. But, you could be waiting a while.

The market is STILL oversupplied today.

Where’s the demand going to come from in the short-term?

Unanswered questions…

US consumers are likely to start buying from domestic producers, given the implied tariffs. Europe and the UK are pretty much non-existent in the uranium market. Most of their reactors are either turned off or getting phased out. Japan has more than enough supply. And, while we can’t know for sure, China might not buy a large amount of uranium soon.

It’s only just started turning on its reactors.

Again, we could be wrong…

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Uranium offers a solid investment thesis today. It has also surged with a stronger US dollar. But, despite the many positives, we’re in no rush to get involved with the sector. There are still major concerns and the price isn’t a screaming ‘buy’ yet ― it’s approaching a major resistance zone.

Lots of uranium stocks are still struggling to move higher, as well.

When I recommended cobalt, vanadium and zinc around their lows, there were near-term catalysts. For example, the zinc supply cuts were met with immediate ONGOING buying into 2016. It was a great time to get involved. The spot price ― in all three cases ― also looked on the verge of breaking out for multiple fundamental reasons.

I believe uranium lacks a near-term demand story. BUT, we admit we could be wrong. If the sector starts seeing more demand catalysts, the spot price could skyrocket through resistance.

So, unless you’re happy to invest and hold for this event, I recommend waiting for a confirmed technical breakout above resistance. You might not make as much money, compared to buying at these cheap prices. But, at least, you will save yourself a headache from multiple potential false starts.

Regards,

Jason Stevenson,
Resources Analyst, Gold & Commodities Stock Trader


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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