Japan helps fire up uranium bulls, with stocks expected to benefit from nuclear resurgence
Japanese plans to restart and expand their nuclear capabilities has sparked a surge for uranium, with the global shift towards nuclear power bringing expectations of a bullish environment for stocks.
Uranium stocks glow as Japan seeks new Nuclear era
Uranium stocks enjoyed a sharp move higher yesterday on the news that Japan seek to approve the restarting of nuclear power stations throughout the country, prime minister X also expressed interest in expanding the current number of plants in a clear vote of approval over the future of nuclear as a means to alleviate the pressures evidenced within the energy markets. While Germany has continued to push back on the issue the willingness of Japan to re-establish their reliance on nuclear despite all the suffering associated with the Fukushima disaster highlights how important the energy source will likely be as governments seek to obtain a reliable energy source that also reduces carbon emissions.
The entire sector reacted with Glee yesterday with stocks surging to double digit gains across the board. Whilst uranium itself has been in a holding pattern there is a chance that we could soon see sentiment improve once again to provide significant upside for investors. The chart below highlights how the pullback in uranium over the course of recent months has led to a tightening coil for price akin to the prior pull back in X. With the wider bullish trend still in play this latest shift in sentiment could help raise demand through higher investment in physical funds such as yellow cake and the Sprott investment vehicle.
While Japan is a particular posterchild given the historical context, there is a wider story at play here based around the need to find low emission, self-sufficient energy as the world’s demand for electricity increases. As such, the image below highlights how any expansion in Japan capabilities would add to a long list of countries committing to the development of nuclear power plants in the coming years. The image below highlights exactly that, with China and India in particular expected to drive up future Uranium demand.
The demand outlook certainly looks positive for uranium, with the development of nuclear reactors around the world likely to drive up the price of uranium if supply doesn't keep up. As we can see below the expectation is that that growth in demand has been predicted to come as supply dwindles. The Russian crisis facing the West highlights that supply from the likes of Kazakhstan and Russia are far from guaranteed.
Unike most commodities, Uranium does not trade on an open market, with buyers and sellers instead negotiating contracts privately. As such, lets take a look at some of the other investment options for traders.
Sprott Uranium Trust
The Sprott Uranium Trust provides one way of investing in the price of Uranium, with the Fund essentially stacking material to correspond with in-flows. This trust is also one of the most useful proxies for the underlying uranium price given the nature of its construct. With the price consolidating over the course of the past two months we have seen a sharp pop higher yesterday breaking the price through the 1530 barrier considering the fact that the price has been consolidating above the levels respected in late 2021 there is a strong chance we are looking at the beginning of that next spike higher for uranium and the Sprott trust.
Looking from producers, Cameco is the obvious choice. While a producer will feel the impact of spot uranium prices, it is worthwhile noting that the price achieved for their product will be a result of contracts signed at different levels. Thus, this stock will often be less sensitive in both directions given the fact that prices are locked over time.
The Uranium mining giant has seen significant volatility, with the share price falling 38% from its April peak into June. However, the price has been on the rise since with this week marking a particular move of note given its size thus far. The wider weekly chart highlights the ascending trend line underpinning this uptrend with the price having fallen into a deep retracement in the second quarter (Q2) of this year. This latest rise appears to be yet another part of that recovery with the price now targeting the key june high of 2828 followed by the subsequent peak of 3248 it is worth noting that whilst such a rise would represent the high of this current uptrend the stock has traded well above those levels in the past with 2007 and 2011 topping out at 4964 and 3971 respectively.
Yellow Cake is the primary uranium investment vehicle in the UK, with the firm similarly issuing shares and storing barrels of the commodity over time. With prices on the rise sharply over the course of this week. This looks to be drawing the line under the declines seen throughout April-July, with the wider bullish trend looking to kick back in here. With the price rising tentatively through the £4.08 level it looks like that wider bullish trend is back in play here. With that in mind we look back to the moves seen in September 2021 and March 2022 for inspiration on how things could play out once the bulls feel emboldened once more.
A smaller producer worth keeping an eye out for is Denison Mines, with the stock similarly climbing back up through resistance to signal the potential for a bullish resurgence here. While the chart may look remarkably similar to that of the Sprott Trust, the fact that we are looking at a smaller producer does mean that the size of the moves do differ. As such, while Sprott would see 25% gains to retake the prior high, that figure is closer to 50% for Denison Mines. With the price having broken up through the $1.27 level, it seems as though this trend has bottomed out following the decline into 92c in July.
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