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Analysis

Uranium: An Attractive Long-Term Contrarian Play

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If you are a contrarian investor, then you should have a look at Uranium. In 2011, Uranium hit a high of $73 a pound, which itself was about 50% below the highs of around $140 per pound reached in 2007. At the current levels of $20.5 per pound, Uranium is down more than 85% from the highs.

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Key Findings

  • Uranium prices are in a long-term downtrend since the Fukushima incident in 2011
  • Demand is likely to pick up in the next few years with new plants under construction
  • Supply is constrained with world’s top producer Kazakhstan reducing its output by 10%
  • Uranium has strong fundamentals, however, price realization might take some time
  • Use a staggered approach of investment. Buy only for the long-term
  • High risk – High reward investors can buy URA ETF, while the risk-averse can buy NLR ETF

So, Uranium prices are low – that’s established. But, what has changed now that qualifies Uranium as a buy? Read on.

What was the Reason for the Collapse in Prices?

The first commercial reactor in Japan was commissioned in mid-1966. Since then, Japan added around 50+ reactors by 2011 that supplied about 30% of the nation’s electricity, which was expected to increase to 41% by 2017 and 50% by 2030.

However, after the 2011 Fukushima accident, which was one of the worst nuclear disasters since the Chernobyl incident in 1986, nuclear adoption took a back seat and all nuclear reactors in Japan were shut. Post the accident, new stringent tests are undertaken before allowing any nuclear facility to start operations. The status of the Japanese reactors is shown in the image below.

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The World Nuclear Association said:

Currently, 42 reactors are operable and potentially able to restart, and 24 of these are in the process of restart approvals. The first two restarted in August and October 2015, with three more since.

However, it wasn’t Japan alone that shut its reactors. The Fukushima incident led Germany to shut eight of its 17 reactors with the remaining to be phased out by 2022. Spain, Belgium, Switzerland are also moving away from nuclear power.

A few other nations that had planned or were in the process of constructing nuclear plants have abandoned them and others have pledged to remain nuclear free. This led to a massive drop in demand and painted a bleak picture for the future. As a result, Uranium prices nosedived.

What has Changed Since then?

The current Japanese Prime Minister Shinzo Abe is a supporter of Nuclear technology for meeting Japanese electricity requirements.

Our resource-poor country cannot do without nuclear power to secure the stability of energy supply while considering what makes economic sense and the issue of climate change..

Abe told a press conference back in 2016.

Hence, expectations that Japan will again restart at least part of its operable Nuclear plants is a positive.

Additionally, a number of developing nations like China, India, and others are turning towards Nuclear technology to feed the increasing electricity requirement of the rising middle class. Using fossil fuels has led to huge pollution problems, which can only be tackled either by nuclear technology or other clean energy resources. Hence, these nations are turning away from fossil fuels and nuclear technology is likely to be one of the major beneficiaries along with natural gas and renewables.

As of May 1st, 2017, there were 447 nuclear reactors in operation globally and 59 reactors under construction. However, World Nuclear Association says that 170 reactors are planned while 372 have been proposed. These will boost Uranium demand in the future as and when they get commissioned. Readers can read the details and the countrywide breakup here.

Demand Likely to Increase in the Next Three Years

There are various estimates by different organizations, for high, mid and low levels of demand, as shown in the chart above – sourced from the IAEA. Demand is likely to increase in the next three years, beating production during the same period, because the world’s top uranium producer Kazakhstan has planned to cut its output by 10% in 2017.

State-owned uranium company and global production leader, Kazatomprom Chairman Askar Zhumagaliyev said in a statement:

These strategic [uranium] assets are far more valuable to our shareholders and stakeholders being left in the ground for the time being, rather than adding to the current oversupply situation.

Source: Mining.com

This is a major development because Kazakhstan has been increasing its production in the last few years. Its production increased from 19451 tonnes U (tu) in 2011 to 24575 tU in 2016. A 10% cut will reduce its production by 2457 tU, which is equal to what the nation had produced way back in 2013.

In 2016, the total global production was 62027 tU. For 2017, the total demand projection according to the World Nuclear Association is about 67,867 tU. Though the demand is higher than the supply, in the last six years, there has been a huge inventory build-up due to the absence of Japanese consumption. Hence, this inventory will act as a secondary source of supply for the next few years.

Nevertheless, lower supply and higher demand will push prices higher in the next few years.

Analysts are also Getting Bullish on Uranium

We expect global uranium demand to rise roughly 40% by 2025, a staggering amount for a commodity that saw next to zero demand growth in the past 10 years…

said Morningstar analyst David Wang. He has a target of $37 a pound for this year and $65 by 2019, reports Market Watch.

From a fundamentals standpoint it’s pretty clear that demand for uranium is going to rise given what we know of nuclear power construction activity over the next 10 years,” said John Robertson, executive director at EIS Capital Management. “It might be a little while before there’s a noticeable improvement in the fundamentals of the uranium market but I think that the downside risk from an equity point of view has been greatly reduced…

reports The Australian.

Risks to our Analysis

With different options like wind, solar, natural gas, etc. available, chances are that the countries will opt for them over the riskier nuclear energy. Any untoward incident in any nuclear plant will signal the end of nuclear energy and Uranium prices will sink further.

What do the Charts Forecast?

The weekly chart shows that Uranium futures are clearly in a downtrend, however, there is a bottom formation in progress. We will get our first indication when Uranium prices breakout of the downtrend line and move above it, which should be close to 24 or 25 levels. A confirmation of a likely double bottom will be signaled when price breaks out of the recent swing high of 27.5. The pattern target of the double bottom is 37.5.

On the daily charts, we find that price has broken out of the 20-day EMA and the downtrend line and is approaching the 50-day EMA. Uranium prices are showing first signs of bottoming out.

How do we Play This uptrend in Uranium?

There are two ETFs that focus on the uranium market. The Global X Uranium ETF (NYSEARCA: URA) and the VanEck Vectors Uranium+Nuclear Energy ETF (NYSEARCA: NLR).

While URA consists of uranium mining companies, its portfolio contains a number of penny stocks, making it the riskier of the two. It has a five-year return of negative 18.67%. Also, among its top 10 holdings, it has five stocks that are quoting under a dollar and its top two holdings make up 33.54% of its assets. This ETF can be a good play when uranium prices gain momentum, as then the penny stocks will jump higher.

For now, we believe that NLR is a better and safer option for the investor. It has a five-year return of 7.39% and a year-to-date return of 7.54%. The ETF has better quality stocks in its portfolio. However, the risk involved is the low assets under management of only $31.39 million and a large bid-ask ratio. It is also skewed with companies listed in the US and Japan. It, therefore, misses out on the companies from France, Canada, and others.

Therefore, investors who want a high reward for their investment but are willing to take a higher risk should buy URA, whereas, investors who are risk averse should buy NLR. We expect a 40-50% return on investment in the next two to three years.

Featured image from Shutterstock

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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2 Comments

2 Comments

  1. gullyfoyle

    July 2, 2017 at 4:15 pm

    Thanks for the analysis, was interested in uranium about a year ago. Thanks for bringing back to my attention.

  2. GRACE88

    July 3, 2017 at 12:23 am

    Thanks for the update.

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Altcoins

Bitcoin Cash Spikes on South Korean Volume

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Bitcoin cash (BCH) resumed its uptrend Friday following a sudden spike in South Korean trade volumes. Recent activity in the Asian country suggests that the bitcoin alternative could gain more exposure in the short term.

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BCH/USD Price Levels

The BCH/USD exchange rate surged above $1,750 on Thursady, where it was still some $800 shy of the all-time high. Prices would later consolidate below $1,700 as markets paced the gains. At press time, BCH/USD was up 6.6% at $1,662.

With the recent gain, bitcoin cash is worth a combined $28.4 billion, according to CoinMarketCap. That puts it third among active cryptos, behind online bitcoin and Ethereum.

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Thursday was bitcoin cash’s second major spike of the month, with more traders backing the alternative blockchain. After months of futility, BCH caught fire in mid-November after the backers of Segwit2x abandoned their planned hard fork. Following an initial spike, bitcoin (BTC/USD) declined sharply.

The complete opposite has occurred in recent weeks, with bitcoin cash tempering its advance and BTC adding thousands en route to multiple record highs. The original bitcoin was down more than $110 on Friday, but continued to trade well north of $8,000.

BCH has put up strong gains in recent weeks, a clear sign that the market has moved to a higher base. The cryptocurrency struggled to make a name for itself after it broke away from the original blockchain on Aug. 1. Based on the latest price action, BCH is making the case for a return to $2,000.

South Korea Factor

Trading activity in South Korea continues to be at the center of bitcoin cash’s rally. The Asian country has emerged as a major player in the global cryptocurrency market, with investors there showing a greater propensity to adopt altcoins.

On Thursday, the country’s Financial Supervisory Service (FSS) said it had “no plans” to monitor the cryptocurrency space because it believes the digital tokens do not represent real money.

“Though we are monitoring the practice of cryptocurrency trading, we don’t have plans right now to directly supervise exchanges,” said Choe Heung-sik, the agency’s chief. “Supervision will come only after the legal recognition of digital tokens as a legitimate currency.”

Positive vibes from South Korea may be partially responsible for the huge upswing in trading volumes tied to BCH. Trading volume in the cryptocurrency has risen above $4.1 billion in the past 24 hours, according to CoinMarketCap. That’s the highest level in nearly two weeks.

Bitcoin cash is also benefiting from Bitstamp’s decision to integrate the cryptocurrency next month “in response to the demand.”Bitstamp is the world’s twelfth largest digital currency exchange, according to Business Insider.

Separately, digital wallet provider Bitwala announced plans to integrate BCH into its platform, a clear sign that the token was gaining wider acceptance. The platform, which has more than 57,000 users, said it will now facilitate storage of BCH as well as money transfers. The team also said it is working hard to integrate mobile BCH wallets in the near term.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

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Analysis

Technical Analysis: Litecoin and Ethereum on the Move as Rotation Continues

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The altcoin bull run continued today despite the US Thanksgiving holiday, as trading remained active in the majors, and another important break-out occurred, this time in Ethereum. Litecoin is also strong today, and the coin is testing the key $75 resistance level, as it follows in the track of ETH again. The currency still looks set to hit the next target at $82.50, with the all-time highs below just below the $100 level also in sight. While the long-term momentum is edging towards overbought territory, the coin remains bullish on both time-frames, with strong support still found at $64 and $56.

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LTC/USD, 4-Hour Chart Analysis

Ethereum scored a new record high after moving past $400 for the first time in five months, and considering the lengthy consolidation before the move, more upside is likely for the second largest coin. With the long-term momentum still not being overbought, the token’s price might test the $500 mark in this leg higher, with Fibonacci targets ahead at $475 and $512. Support levels are found below $400 at 4380 and $350.

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ETH/USD, 4-Hour Chart Analysis

Ripple is also attempting another bullish move, while Monero and Dash are consolidating just below their recent highs, while IOTA is in a short-term correction pattern as well. More and more altcoins are now in the latter phases of their rallies, just like Bitcoin, but traders still have opportunities with favorable risk-rewards ratios. Let’ see the short-term charts.

(more…)

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Analysis

Break-Out: Another Crazy Rally in Ethereum?

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What crazy rally you might ask? Bitcoin is the star, right? Everything was about BTC (and BCH) in the last few months, and lots of traders forget the gains that ETH posted amid the take-off of the ICO Rocket during the spring.

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Comparing ETH and BTC in 2017

By the numbers, out of the two largest coins, 2017 is still the year of Ethereum as the 3600% rise in the token’s price dwarfs Bitcoin’s impressive 630% gain. Could Ethereum be on the verge of another epic surge? Before answering that question, first let’s see what happened with the coin in recent months.

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How Did We Get Here?

ETH/USD, Daily Chart Analysis

Ethereum finally broke above the magical $400 barrier that has kept a lid on the token’s price for five months after the crazy run-up in May. What first followed after that stellar move, was a 70% decline top-to-bottom, with a flush-out panic low in July.

Our trend model turned long-term positive even before the spike lower, but since then, the coin only managed to get close to the all-time highs, while Bitcoin eclipsed the previous star with its dominant performance. Now the tide might be turning, as ETH is finally gathering bullish momentum and today it breached the $400 mark, flirting with a break-out from the giant triangle consolidation pattern.

(more…)

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