This is not financial advice to buy or sell securities, but rather my opinion on how energy demand will change, specifically with Uranium in the nuclear energy sector.
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Is the uranium sector going to see a continued squeeze? Maybe. Looking at the spot price for Uranium we are sitting a little above the average over the last decade at $50/lb.
If you’ve been paying attention to global news you’d have noticed that events taking place with Russia and Ukraine are sending supply shocks throughout the entire energy sector. The lack of security in energy supply (oil and nat-gas) has sent a sharp increase in Uranium spot price over the last several months.
Interestingly enough, in 2021 and early 2022, most countries have been moving away from nuclear and into other forms of “green” energy, which in itself is a bit of an oxymoron.
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One of the only countries that continued their (very large) investment into nuclear energy has been none other than… China. This comes at a time when most other countries have been permanently shutting down reactors.
It is clear the spot price of Uranium and the number of closing or new reactors coming online seems to be very related. However, nuclear demand has remained very high and continues to grow.
At this time there is an imbalance of supply and demand. It’s been a uranium winter for the uranium market over the last decade, but spring will soon be upon us. Because of this and thus low Uranium spot prices, there has been severe under-investment in uranium mining (supply shortages). With this lengthy period of underinvestment, the market is now critically undersupplied and higher prices are a result from an inadequate supply combined with a high demand.
Cheap uranium = less incentives for miners = less supply.
Change in demand to upside = supply crunch = higher prices.
Furthermore, many nations, the likes of Japan, France, Sweden, Germany, the UK, and the US, are now rapidly rethinking their attitude on Uranium as governments seek to address this energy issue. This is putting the focus on licence extensions and investments into new reactors.
In conclusion, the uranium market is extremely competitive, but global energy constraints is seeing demand rising quickly for nuclear energy, whether governments like it or not. To further complicate matters, geopolitical unrest prevents Kazatomprom, one of the world's largest sources of uranium and based in Kazakhstan, from shipping the rare metal on anything but the harshest of terms.
Seems to me the perfect storm is brewing and is setting up to take place in 2023.
Disclosure: I am long shares shares of CCJ, and URA, and reconsidering investments in additional names. Others I am looking at may be: GLO, UEC, DNN, along with other names in the URNM ETF. Holdings below.
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