Spot Uranium Fall Takes the Starch Out of Speculative Plays

Spot uranium fell $15/pound Tuesday, or over 13%, from $105/pound to $90/pound, according to the uranium consulting company Ux Consulting. That move extended a pullback that started in June, when yellowcake reached an all-time high of nearly $140/pound.

The move has many people wondering if the massive uranium bull market has finally reached its peak. Uranium prices went parabolic beginning in 2005, when a pound of yellowcake fetched just $20; those prices rose more than 700% through June, before the recent pullback began.

The move has taken the starch out of some of the more speculative uranium plays, such as junior uranium miner Uranerz (URZ), which has lost half its value since June. Then again, that correction still leaves URZ up 200% from where it was trading in 2006, when the bull market in uranium first gathered momentum. And broader measures of the nuclear industry continue to trade near or at all-time highs.

As discussed here in March, the fundamentals underlying strong prices for uranium are clear: the "nuclear renaissance," which has seen over 200 new nuclear energy plants proposed in recent years, promises to boost demand for uranium fuel substantially. And with supply limited, prices will likely rise from historical levels.

But the simple mathematics of that equation has attracted speculators to the market, including hedge funds and family offices. These speculators helped push uranium to its June peak, from which a pullback was almost inevitable. Have the speculators been taken out of the situation? It remains to be seen. As early as this year, the most bullish commentators were hoping for $100/pound uranium. Well, we just crossed back below that $100 point Tuesday. For the short-term, speculation may still play a key role.