Fundamentally, the bull case for uranium is that uranium prices have been depressed due to the post-Fukushima negative sentiment towards nuclear power despite rising demand in emerging markets. Uranium miners have been trading near lows as cheaper crude oil prices subdued the immediate pressure for energy importers to switch to alternatives. Nonetheless, the fundamental developments for uranium prices have been very positive and likely are the catalysts for a turnaround in uranium prices.
Uranium prices since Fukushima - Source: Cameco
The first catalyst is the accelerated restart of nuclear power plants in Japan. As of April 1, only five of Japan's 42 nuclear power plants have been reactivated. Due to the shale bust and fading "Abenomics" hopes keeping the yen from falling below 125 vs. the dollar, oil prices plummeted 68% from the date of the accident in yen terms from 2011 to 2016. As a result, there has been economic pressure to import energy and keep nuclear power plants closed. However, with a broad recovery in oil markets since then and rising rates internationally, oil in yen terms has likely bottomed.
Oil in Yen since 2013 - Source: IndexMundi
Since Japan does not produce any fossil fuels domestically, its reliance on imports of oil and natural gas from abroad makes reactivating nuclear power plants imperative. Consumers will start to feel the impact of the shutdown and increased foreign oil dependence from higher utility bills in the absence of restoring nuclear power sources. In addition to the economic pressure, the political climate is becoming more favorable as the leading governor opposing any nuclear plant reactivation had to resign his post due to a sex scandal. Abe's weakening poll numbers will not benefit from rising energy costs either. As a result, Japan plans on reactivating at least two more plants this summer, and 17 more have applied to restart. Assuming no oil bust in the near term, the rest of the power plants will likely be modernized and reactivated over the next five years.
Outside of Japan, nuclear power demand is growing. The US and France are not adding plants but still are maintaining existing nuclear plants and modernizing them to prevent future accidents. Meanwhile, in emerging markets, 57 new nuclear plants are currently under construction.
Germany will also start to face pressure to reactivate its nuclear plants as well. Shutting them down has contributed to Germany having the highest electric power costs among developed economies. For a country that relies on heavy manufacturing with large energy demands, high power costs hurt the country's exports relative to the US (which has a fraction of the energy costs due to abundant natural gas) and China (which outcompetes Germany on wages).
Germany has a 65% non-fossil fuel target for its energy grid by 2030. Germany and many other nations looking to end dependence on fossil fuels will have a very difficult time achieving such goals without involving nuclear power. The cost profile of solar and wind energy (assuming no NIMBY problems) has come down somewhat, but not enough for a major country to rely on them as the dominant power source. This is especially the case in northern-European countries which are leading this charge despite less than favorable levels of sunlight for solar farms.
On the supply side, the main catalyst has been the Russian sanctions and geopolitical risks. Recent reports have indicated that Putin is willing to come to the table for a peaceful compromise to ease off sanctions and political tensions. However, the Russian government is drafting countersanctions to restrict the ability of the US to import uranium as a backup plan. Russia cannot compete with the West economically on an absolute basis, so one of the few ways it can geopolitically strike back without a full hot war is to limit uranium exports which the US imports. 95% of supply comes from CIS nations.
Other major supply developments have been Kazakhstan shutting down 20% of its production and Cameco (NYSE:CCJ) shutting down its McArthur River mine the last few months as part of a "supply rebalance".
I remain bullish on uranium and trade it via the URA ETF. URA provides a more diversified means than Cameco to invest in the sector (although it holds a 10.4% stake in CCJ), and the other companies in the industry are well below the minimum market cap of either my personal trading comfort zone or what I would recommend to readers. Cameco is the leading company of the uranium miners, but a potential $2B CAD tax lien on $4.4B USD market cap company is a major risk I would prefer to minimize. News of a settlement would be a buying catalyst for Cameco. The Canadian Revenue Agency (CRA) tax trial took place last September, but a verdict can happen anytime between now and March 2019.
Disclosure: I am/we are long URA. 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.