What's happening with Uranium?
And what would George Soros do?
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Prices of Uranium (AKA “yellowcake”) have been steadily dropping since the Fukushima disaster of 2011. They bottomed around 2016 and lingered until Covid, when the whole world was tipped on its head — and with it the global energy markets.
It’s important to understand the backstory behind the use of nuclear power for energy, especially clean energy. Nuclear power is a fully carbon-free energy source and is also highly reliable. A nuclear power plant can operate 24 hours a day for decades, virtually with no downtime.
But besides the Fukushima disaster which caused Japan to pull back from nuclear and put an anchor to Uranium prices, there have been other political-cultural forces antagonising the mass adoption of nuclear.
This piece from last year gives a historical context of energy politics, including Nuclear energy politics in Germany, and how it influences the balance of power until today. The Chernobyl incident of 1986 caused a massive anti-nuclear wave in the country forcing mainstream politics to go against nuclear and mutually agree on the Nuclear Consensus.
….Enter Energy Insecurity
But now that the world has entered a more “harsh” geopolitical environment, with military conflicts brewing all over the place and the card of Energy Weaponisation dropping on the poker table — governments are starting to throw optimisation planning out of the window and steer more towards redundancy planning.
Optimisation planning? Redundancy planning?
Yes, before the watershed moment of the 2022 War in Ukraine, a country could basically procure resources/energy from any other country it wanted — domestic politics aside.
So they optimised for total cost: Now, they disregard price and optimise for trading with “friendlies” and also energy security. Think Russian gas bought by Germany.
This also means that governments may be forced to enter into investments which do not achieve their required ROIs at all — but are needed in case something goes awry down the line.
I believe nuclear power offers that security, and this is why nuclear as a power source is re-emerging as an alternative.
Note: One has to maintain his reason and rationality in order to discuss nuclear power as part of a holistic energy planning and design. The Germans, and especially the Greens, have completely thrown that out the window - As I discuss in my Realpolitik piece above.
Change of guard in Africa
To produce nuclear power, you need yellowcake, right? Well Niger is a producer of 5% of the world’s uranium production, and it just stopped selling to the West.
Africa has been a battleground between West and East since forever. The West had the strongest grip, obviously, and managed to completely destroy the Mother Continent.
I wrote a piece last month discussing the history of foreign involvement into Africa, colonialism, post-colonialism and current developments. I discuss specifically the history of the European colonies into Africa and the culmination of all their intervention and leeching into a desperate attempt by the EU today to remain a strong influence in Africa.
Japanese public opinion is increasingly getting behind a restart of its nuclear reactors, giving another positive boost to the price of Uranium. The Takahama nuclear facility was restarted yesterday, reducing the need for imported LNG and increasing demand for Uranium.
URANIUM - 25 Year Chart
All the above trends are increasing interest for Uranium, as well as its derivatives — Uranium mines, producing or shut. Investors are traders are wondering how to play this. Will it go back to c. 150$/lb?, they wonder.
What would George Soros do?
Building a new Uranium mine takes decades. Global production is limited to a few geographies — the majority in North Canada, Central Africa and Kazakhstan.
Knowing how important the procurement of this metal is for their power needs, the market starts to bid this commodity up. But will it skyrocket and make new highs?
Considering the long lead times to bring in new production as well as the spastic demand for it — I see this market as an out-of-the money option. It spikes when the underlying assets gains interest and momentum, and then crashes when interest fades just a bit.
As the price moves up for Uranium, surpassing the marginal costs of production for mines that have been previously shut, the business case is made for them to re-open.
When these mines feel confident that the price will remain high enough for them to get an ROI on the the restarting cost and make a profit, they push the button and start the process. But this takes time too.
Meanwhile, Uranium is bid higher attracting more speculators into the market and possibly pushing the price even higher.
When supply comes back in the market, prices move down again until they find the new “equilibrium”.
I don’t see this is a secular move with high potential for profit. I see it as a volatile move with the possibility of a squeeze, causing the price to spike up very suddenly.
However, do not take this is as advice to jump on Uranium and wait for the spike to happen — even if the spike does occur, most traders will trade it badly and lose money.
Last year’s crude oil spike is a good example of everyone being wildly bullish on a market, which then turns bigly and takes their money.