Uranium Supply Shortfall

The Not-So-Secret Supply Shortage That Will Spell Triple-Digit Gains for Uranium

Written by Jason Simpkins
Posted December 2, 2013

Chernobyl didn't kill nuclear power... Three Mile Island didn't kill nuclear power... So why would Fukushima kill nuclear power?

It can't, and it won't. That may run contrary to what you've been hearing, but it's true.

There's simply too much juice behind uranium – an energy source that, despite its obvious drawbacks, is cheaper and cleaner than most other fuel sources.

More than a dozen countries currently get more than 25% of their energy from nuclear power. And even with all the delays, defections and postponements that followed Fukushima, countries around the world are revving up nuclear power projects, not winding them down.

The surge is being led by China, which has 17 reactors in operation, another 28 under construction and more than 100 planned. It's followed by India, a country that's pledged to grow its nuclear power capacity from 5,000 megawatts now, to 63,000 megawatts by 2030. Russia is in the mix, as well. The Kremlin aims to boost the share of electricity it gets from nuclear power to 25% by 2030, up from 16% now.

And while Germany has decided to purge itself of nuclear power, many of its European counterparts are plowing ahead.

Great Britain and France – which already get 75% of their power from nuclear plants – recently signed a joint declaration of cooperation on nuclear energy. And Poland has plans to build two plants that will contribute 15% of its power supply.

The only thing holding uranium back right now is a supply glut. And that, like all the apprehension that followed Fukushima, is starting to dissipate.

 

You see, uranium prices have fallen about 50% to just $36 per pound since the Fukushima crisis. And they're down an astonishing 76% from a record high of $150, reached in 2007.

Problem is, uranium costs about $40 per pound to produce. So rather than operate mines at a loss, producers have been scaling down production.

Some 80% of the world's primary uranium supply now comes from just 10 mines. Worse, future global supply is dependent on just five newly proposed projects.

So while there's more than enough uranium to go around now, demand is set to outstrip supply starting in 2016, creating an expected shortfall of 60,000 metric tons just two years later, in 2018.

Of course, long before that happens, speculative traders will pile in and drive up prices.

It's obvious they've already started, because we're starting to see uranium bottom. After falling for most of the year, prices flattened out at $35.75 in September and October and actually rebounded to their current level above $36 in November.

We're likely to complete a full on turnaround, with prices swinging upward early next year.

All things considered, uranium prices should climb back over $50 per pound in 2014, and back above $70 per pound in 2015.

Then, if production isn't brought back on line in time to abolish the supply/demand gap, or if it falls short of expectations, uranium could once again be testing $150 per pound.

Get paid,

Jason Simpkins 

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