-- Posted Sunday, 11 December 2005 | Digg This Article
The Uranium Story
If you want to succeed in the world you must make your own opportunities as you go on. The man who waits for some seventh wave to toss him on dry land will find that the seventh wave is a long time a-coming. You can commit no greater folly than to sit by the road side until someone comes along and invites you to ride with him to wealth or influence.
John B. Gough 1817-1886, British-born American Temperance Orator
http://www.uxc.com/review/uxc_g_price.html
http://www.uxc.com/review/uxc_g_2yr-price.html
The first chart is an 18 year chart of uranium and the second is a 2 year chart; both reveal that Uranium is in a major up trend and it has been putting in new multi year highs for quite some time now. One of the reasons for this rapid move is fear.
The fear is based on the fact that approx 91 million kilos of Uranium will be needed but mines only produce approx 45.5 million Kilos; so far this short fall has been met with above the ground reserves. Most of this above the ground uranium has come from the decommissioning of nuclear warheads (this accounts for roughly 45% of the global supply); sooner then later these supplies are going to run out and then we are going to have a problem.
Currently there are roughly 441 nuclear power plants operating around the world producing approx 17% of the world’s electricity. 24 new power plants are under construction in about 9 countries (this number does not take into account future projects only current ones). 103 of these plants are in the US alone and they produce roughly 20% of our electricity; the only other source that produces more energy is Coal. Nuclear power plants can run roughly 540 days before they need to be shut down for refuelling. The problem with nuclear power plants is that unlike their fossil fuel operated counterparts, which can run on coal, gas, or oil they can only run on Uranium and nothing else. This means that we could face a serious problem in the future if supply cannot meet demand. Currently the demand outstrips supply by approx 100% and when all the new nuclear plants come online things could get even worse.
One can see how bad the situation is when sub par mines start opening up in Colorado, the grade of the yellow cake here is far inferior to that found in Australia and Canada; despite this 3 new mines have opened in Colorado. This simply illustrates that the industry experts understand the gravity of the situation and are even willing to invest in sub par mines because they expect prices to trade at much loftier levels.
The worlds need for electricity is going to increase exponentially over the next decade and there is simply not enough fossil fuel to meet these demands; so nuclear energy appears to be the only viable option until some new energy source is discovered. The decision to take nuclear Energy much more seriously can be seen by the following
1) Thirty reactors received 20-year license extensions, 18 reactors have filed for license renewals and another 22 are likely to seek renewal in the next six years, the NEI reports.
2) India currently has 14 reactors and plans on building an additional 24 reactors. China has about 10 and plans on building another 18, and South Korea plans on building another 8. Even the US is starting to seriously look into the nuclear option; 13 plants out of the total of 103 are going to be upgraded. In addition, three consortia are seeking licenses for new plants. Russia has approx 31 nuclear power plants, 6 new plants are under construction and roughly an additional 16 plants will be built over the next few years. Russia’s electricity needs are increasing at the rate of 3% per year and Gazparon has cut back on gas supplies for the production of electricity by approx 12% because it can make far more money by selling to the Europeans on the open market. So the Russians had to come up with several alternative plans and it appears that they have already begun to implement some of them. Russia has cut back on Uranium sales because they know that they are going to need these supplies sooner than later. They currently hold 4% of the world’s recoverable uranium and so they appear to be in a somewhat decent position to deal with their future needs.
The huge plunge In Uranium prices was attributable to several factors, all which resulted in virtually everyone wanting to shun away from this industry. Here are list of some of the main reasons
1) The meltdown at the Three Mile Island reactor in Middletown, PA in 1979. Prior to this event plans were underway for 50 more nuclear plants in the US. After the Incident all plans were scrapped.
2) The 1986 explosion at Chernobyl
3) The end of the cold war that stopped the arms race all contributed to serious drop in demand for uranium and thus for awhile the market was suddenly flooded with too much uranium.
The end result was that production was severely cut back and many mines were eventually shut down; that’s why the nuclear industry is in the position it’s in today. Now demand is about to go ballistic and there is simply no way to meet all this demand in time. Should the US actually join this race, which it might have to then already constrained supplies are going to be stretched even further? Since only uranium can power these plants we are eventually going to have a bidding war on hands the likes that the world has never seen before. There is actually no way to effectively predict how high uranium prices could eventually go. It seems we have a confluence of disasters all aligning up waiting to happen in the not to distant future. It’s for this reason we are taking key positions in certain stocks (one of which we sold for a 100% gain and are looking to take new positions in now that it has pulled back) and will continue to do so for the foreseeable future.
Now all the above info is based on the longer-term outlook. In the short to intermediate time frames Uranium could pull back simply because it has experienced a rather rapid move up. This pull back will be nothing but a mouth-watering opportunity to take additional positions in this sector. Don’t expect this pull back to take place over night and neither can we expect all the stocks to pull back to the same extent. Some stocks will pull back less while others will pull back more; the key thing is to know when to add to or take new positions in these stocks.
Conclusion
Since owning uranium is not an easy task the only option for regular individuals is to buy uranium stocks. However as with any sector there are many worthless stocks here so one has to know which ones to buy and which ones to avoid like the plague.
Dozens of new plants are going to come online in the not too distant future and the tragedy is that there is simply not enough uranium right now to power them all. Opportunity comes knocking once in awhile while disaster comes in kicking all the time.
One can present people with opportunities. One cannot make them equal to them.
Rosamond Lehmann 1901-1990, British Novelist
Cement, Steel, Oil and the markets
Life is 10 percent what you make it and 90 percent how you take it.
Irving Berlin 1888-1989, Russian Composer
China and India have both been building a whole bunch of cement factories and steel mills; this means it’s just a matter of time before they start to dump cheaper cement and steel on the markets. Shortages will suddenly disappear and surpluses will appear and the big companies in the west will get hit hard. In fact China is very close to becoming an exporter from being a net importer of cement. Americans have suddenly become more conservative in their usage of oil this will temporarily create surpluses which should have some downward pressure on oil; this is currently happening as is evidenced by the current prices of oil. There is one caveat if a major refinery should break down or close for an extended period of time and this deficit cannot be made up with imports then we could witness another huge spike in petroleum prices even in the face of falling oil prices.
Add in the fact that China and possibly India will soon become net exporters of cement and Steel and there is a good possibility that this part of the commodities sector could get whacked hard. China is the world’s largest steel maker; out put last year increased by more than 23% to roughly 272 million metric tons according to the international Iron and Steel institute.
This unfolding of events could possibly kill the inflation argument since today’s geniuses judge inflation in terms of prices; this would put less pressure on the Feds to raise rates and they might even do the unthinkable which is a lowering of rates. If the cement and steel sector get whacked and the penguins start screaming that the inflation threat is now over several markets in the commodities sector could experience a rather hard correction. One such market is copper; it’s already rather overextended and a small ripple would be enough to push it into a hard correction.
Taking this one step further as stated before it would give the inflation fighting pundit’s ammo to support their argument that inflation is no longer threat. This would then have the effect of extending the business cycle, which means that the markets could experience a final ballistic move up and the hard correction that awaits the housing sector would be delayed. This would become more of a reality if the Feds actually decide to lower rates sometime next year.
So to summarize
China and India flood the market with cheap steel and cement. Since China alone accounts for over 40% of the worlds demand for cement the sudden elimination of China as a buyer and now exporter will shred this sector. The same scenario holds true for steel. Manufacturers of steel and cement in the west could literally be destroyed. This in turn will make it look like inflation is not a threat. Everyone and his granny will buy this argument and the Feds might end up actually lowering rates. This lowering of the rates will extend the business cycle and delay the huge correction that awaits the housing sector. We can see further anti inflation action in the actions of many big companies; many are either selling of assets, paying down debt, issuing huge multi million (sometimes billon) dollar buy backs or simply refusing to pay the pensions for their employers by declaring bankruptcy. The elimination of pensions is a huge cost reduction. Very little money is being put into building new facilities or buying new equipment.
If that scenario unfolds we can expect the markets to rally to extreme heights; indeed the action of the all the major indices is very enlightening as all of them have put in new 54-month highs. The transports are one of the most economic sensitive sectors of the market and if the Dow transports can put in a series of new highs then it’s just a matter of time before the rest of the markets follow suit. Everything will look good, the dollar will have rallied very strongly, the markets will also have put in new highs and it will look like everyone is doing well; that’s when the bomb will drop and we should experience a rather blood curling correction.
Bear in mind that as of now the above info only represents a scenario that has a good chance of becoming reality.
Some men have thousands of reasons why they cannot do what they want to, when all they need is one reason why they can.
Willis Whitney
