While most of the investing community is focusing on the direction of gold prices, potential hyper-inflation and quantitative easing programs, smart investors should be focusing their attention to another yellow metal: uranium.
The key nuclear power ingredient has quietly staged a nice rally during the past year, and more gains could be in store as the ignored sector is being propelled by many bullish tailwinds. The combination of positive factors could lead to an almost doubling in prices for the fuel.
So forget about gold and grab some uranium for your portfolio.
Rising Demand, Diminishing Supplies
The meltdown at TEPCO’s Fukushima reactor rocked Japan and set forth unparalleled changes across the entire world’s nuclear sector. That still-unfolding tragedy has made producing power via nuclear means off-limits as both citizens and policy makers debate the safety of the power source.
Japan has begun phasing out the fuel source, and Germany has announced a complete phase-out of its nuclear plants by 2022. Other developed nations have been following suit. These nuclear bans have had a negative impact on both uranium prices and nuclear sector equities since the time of the disaster. Those developments left the sector “dead money” since 2011.
Yet, despite being so hated, nuclear is still the source of a lot of the world’s power, and that isn’t changing anytime soon. In fact, the numbers are growing by leaps and bounds.
According to the World Nuclear Energy Association, there are more than 60 new reactors under construction. That’s in addition to the 150 reactors in construction planning stages and the 330 facilities proposed by governments and utilities, the bulk of which are located in Asia.
With some analysts calling for Asia’s power demands to nearly triple by 2030, governments on the continent continue to expand towards the power source. Both China and India have adopted aggressive nuclear plans in addition to their alternative energy ambitions. China’s latest national plan calls for around 80 GW worth of nuclear generation capacity by 2020, while India hopes to add 200,000 MW worth of generating capacity within 20 years.
The story is the same across the rest of Southeast Asia. Nations like Thailand, Indonesia, Vietnam and Malaysia are all adding the cheap source of base-load power at record clips.
All of this construction will put pressures on the 435 nuclear power plants currently in operation around the globe and the nearly 165 million pounds of uranium they consume each year — especially when you consider the supply issues.
The problem is that current uranium supplies from mines amounts to just 143 million pounds.
The rest comes from an agreement between the U.S. and Russia. The U.S.-Russian Highly Enriched Uranium Purchase Agreement — also known as “Megatons to Megawatts” — was created to dismantle Cold War-era nuclear missiles and use the warheads for reactor fuel. The twenty-year-old program has worked beautifully as the secondary supplier to the nuclear sector and has been able to cover most of the shortfalls.