Uranium Stock Update
Dr. Clive Roffey : firstname.lastname@example.org
For the past two years there has been a flurry of interest in uranium stocks based on the assumption that nuclear power is forging ahead and that environmental issues are no longer detrimental to the future of nuclear powered electricity generation systems. This has resulted in numerous commentators climbing onto the bullish bandwagon and forecasting astronomic price projections for many uranium stocks, particularly the less acceptable exploration companies.
I disagree, and from my analysis I would not touch uranium stocks at this point of time. There are far better and safer sectors of the market in which to invest without being sucked into the unsustainable vortex of uranium euphoria.
Bull markets are born in disbelief and die in a state of euphoria when every man and his dog is an expert on the subject. Well this certainly applies to the uranium market at this point of time.
The greatest proportion of available uranium is sold on long term contracts and the spot market for uranium is more a thumb suck in the eyes of the beholders than a quantitative measure of a truly free trading market. What is of major concern is that for the past year a serious proportion of the rise in the spot price of uranium has been attributed to 'investors'. This is just syntax for speculators. Hedge funds have become active players in the uranium market. This buying group is reported to have accounted for just over 25% of the total 2005 spot volume.
The production of uranium is focused among a small group of companies. In 2004 just four major uranium producers accounted for approximately 67% of the world's uranium production. The top 10 uranium producing companies control 88% of world uranium production. State-owned firms in the old Russian bloc accounted for 23% with Canada as the leading supplier of U3O8 in recent years representing nearly 30% of world production. This leaves approximately only 12% for the spot market to trade.
As U3O8 is the feed fuel for nuclear reactors it is hardly surprising that it is not a freely traded commodity in light of terrorist activity.
There are very few major miners and refiners of uranium. But there are a multitude of wannabees. Paul van Eerden sums them up as unsuccessful gold, silver, copper, nickel, platinum and palladium ambulance chasers. Almost every mining exchange has a plethora of uranium 'exploration or development' companies, most of them promoting a debatable set of drilling results or estimated reserves.
There are some interesting aspects to the chart data of the uranium price and especially the leading shares.
U3O8 demand is directly linked to electrical generation by nuclear power plants. Annual U3O8 fuel consumption by the West has doubled from 1980 to 2005. Forecasts for uranium demand are a function of current nuclear power generation capacity. More recently the astronomic rise in the spot price of U3O8 has been due to speculation of the increase in required capacity with China's need uppermost in the calculations.
On the surface the demand for uranium looks set to remain high for the next decade. But when the technicals disagree with the apparent fundamentals it often indicates that there is a new set of fundamentals sitting in the background that have not yet surfaced. This is the popular chart of the spot price of uranium that is displayed by every pro-uranium lobby. Techncally there was a huge fulcrum base that would support such a powerful move.
But this is the price going back another 20 years. It shows that in the early 70's there was a similar furore over the price of uranium that sent it into the current $45 stratosphere before the collapse back to $10. But as usual "it is different this time around".Technically the price of uranium has hit a potential double top at $45. The huge fulcrum base in the top chart is just an enlargement of the period between1989 and 2001 on this chart. This base has done its job and anything above $50 is running on fresh air.
Dr. Clive Roffey at email@example.com
Uraniumstocks are the subject of continuous hype and I will produce a monthly review of this sector.
For the time being watch them from a distance but do not get too close until the resistance levels are being penetrated.
'Uranium Stocks' and 'Gold & Silver Penny Stocks' are the sister publication to 'Gold Action' and is produced by Dr. Clive Roffey at firstname.lastname@example.org
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July 13th, 2020
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