There has been a significant shift in the uranium market over the last couple of weeks that has led to a rapid rise in the spot price of uranium lifting it from $30 per pound to now almost $36 per pound, which is a 6-year high: https://tradingeconomics.com/commodity/uranium
The cause of this rise is the recent transformation of Uranium Participation into the Sprott Physical Uranium Trust (ticker U.UN). This is a “physical vehicle” that continually issues shares into the market to willing buyers whenever the trust trades above Net Asset Value, which since its inception has been every day. It then uses the proceeds to buy physical uranium to store it with seemingly no intention to sell it back into the market. It could, and one has to be wary of this possibility, but the stated intention from the company is not to.
Clearly this is an attempt to front run the actual end users, the nuclear power plants. There have been voices questioning if this is even ethical? Well, nuclear power plant owners have a clear way to protect their future needs: They can sign long-term contracts and thereby reduce their risk. And they have had many years in which to do this.
If this vehicle continues to attract capital and if the spot market continues to be tight then obviously the price will continue to rise in a cycle that feeds onto itself. If that happens the nuclear power plants will likely start sweating because they have witnessed a similar set-up back in the 2001-2007 period when the spot price went from below $10/lb to above $130/lb.
Whether something similar will happen again is anybody’s guess. The uranium market is not very transparent, even to insiders. Nobody has a clear picture of how much inventory is out there and whether enough of it is even “mobile”, ie. available for sale as prices rise.
But dealing with incomplete information is what we do as investors/speculators. If everything was visible there would be less opportunities. And so we resort to attempting to piece different signals together and weigh their relevance, which is more of an art than a science.
I personally suspect a further rise is in the cards and am long. This isn’t the first time I’ve thought the bull was here though.
Disclaimer: I am currently long several companies in the uranium sector. This is not a recommendation and I may change my mind at any moment.