In my last article on Uranium a few weeks ago, I commented on the state of the market and its future direction after the Kazak's just announced their production cut. In addition, I also highlighted two potential investments to those new to the sector.
Today I want to speculate on which driver of Uranium will be the next to strike. It appears the momentum that production cut announcement gave Uranium has faded.
What is left to continue the rally?
I consider the possible upcoming catalysts for Uranium to be
- Japan reactor restart
- Russian/other state production cuts
- China/India/US reactor announcements/starts/progression
- Momentum from the stock/financial side
Let's go through each, update where each catalyst is at lately and whether it has a chance to influence the uranium price in the short term or long term.
Regardless of the economics, the fundamentals of Japan's energy dependency on imported fuels, the restarting of Japan's nuclear reactors is mostly political and news driven.
Many stories like the recent one stating that Fukushima had "extremely high" levels of radiation will further intensify the opposition to reactor restarts and lower the political will do so.
Japan has 42 nuclear reactors. Only 2 are operational. 2 more were restarted and then halted by a court injunction.
Japan's Institute of Energy thinks 7 reactors will be online by the end of March 2017 and another 19 by March 2018.
Any good news in this area may improve sentiment and bullishness on the sector even if it takes awhile to have a real impact on supply and demand. The Japanese utilities have a large amount of uranium stored as they were forced to take deliveries of Uranium they were unable to use since Fukushima.
Cameco (NYSE:CCJ) just last week entered into a contract dispute with TEPCO as they refused a delivery in violation of their contract.
Among the many people and issues standing in the way includes this man, governor of a local prefecture that hosts some of TEPCO's reactors.
As an example of the difficulty and politics involved, he is opposing the restart of a reactor known as Kashiwazaki-Kariwa (KK).
60% of voters agree with him.
While not producing anywhere near the Uranium that world leader Kazakhstan does, Russia does play an important part. They have a few mines going and room to expand production and discover new ones if they so choose.
They also have been an important part of the Uranium over supply as they have been using old weapons to add to the supply.
If Russia were to make some sort of positive news along to follow what the Kazak's did, that could also boost the sentiment of the sector which badly needs it.
This could come in the form of a production cut, lowering conversion of weapons grade uranium, new reactors, or a variety of other things.
Heck, maybe even Putin and President Trump have a meeting and release a press release stating how important Uranium and nuclear power is to both countries and the future of the globe. Now that would be a needle mover.
New Reactors from China/India/US
It has been known for some reasons now that China and India are both building new nuclear reactors as fast as possible.
These are needed to help combat the smog problems both countries, especially China, has as well as to support their growing energy needs as more people join the middle class.
The problem with catalysts that have been known for awhile is since they are already known they don't have much effect, even if more people become aware they exist.
That is what makes things like OPEC cuts and Kazak cuts effective, surprise.
In this area we need an announcement by the new administration that they support nuclear power and will help it to flourish and grow in the same way they support Oil and Gas. They might even talk about reducing regulation and the lead time to building new reactors in the US which can takes years or decades.
On the Chinese front we need more good, hard news about their nuclear power production in MW increasing and news about how plants are progressing in permitting and building.
China will likely triple their nuclear power to 100MW by 2026 but it is slow going which does not make for a great short term catalyst and will test the patience of any long term investor. Few can think or see into 2026.
Other possible catalysts include bullish sentiment emerging from places outside the industry. Maybe news comes out that hedge funds are betting on Uranium or some famous person reveals it as their biggest investment.
It is hard to know the specifics here because it could be any range of things. Good company announcements could help. Cameco could issue bullish guidance or renew their contracts are rates not seen in years.
Where we sit now is that Uranium has bounced off its lows around $18 and now sits in the low $20s. Any of the above catalysts can get it past 30 and beyond but outside of a big shift in raw demand and supply data, news of China accelerating their reactor building won't move the needle much as we seem to need some surprise factor to get the animal spirits brewing again in Uranium.
The Global Uranium ETF (NYSEARCA:URA) has followed a similar pattern as the spot price.
URA data by YCharts
If you had to make me pick I would say the most likely near term catalyst with the most punch would be Japan reactor restarts. If we get two or 3 restarted with headlines to match in the next few months that could help Uranium head towards 30 I think.
Disclosure: I am/we are long CCJ, FCUUF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.