Uranium on the Verge of a Major Supply Crunch

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After peaking at $72.50 in 2011, uranium prices plummeted on supply issues that plagued the industry for years to come.  However, many uranium producers now believe prices could rise as the market significantly underestimates demand with tightening supply.

It’s no wonder then that analysts have high expectations for a uranium industry revival.

Back in 2011, the world was producing far too much uranium supply, which weighed heavily on prices.  Then, as the Fukushima disaster unfolded, it forced Japan to shut down its reactors, releasing even more supply into a spot market filled to the brim.

Spot prices responded by sliding from $72.50 to $18 in a few short years.

However, in recent years, producers decided to help slow the price decline. Kazatomprom announced that it would reduce production by 20% to better align output with demand.

Cameco Corporation even suspended operations at McArthur River the world’s largest uranium mine. Now, as a result of the closures, analysts expect for the bulk of uranium inventory to be burned off by existing, growing demand.

“Those deliberate cuts to production should finally begin to prop up prices as reserves of the rare metal dwindle and nuclear power generators rush to lock-in long-term contracts,” notes sector veteran John Borshoff, as quoted by Reuters. In fact, once utilities see a surplus of demand over supply, “that’s when you will see a dramatic change.  The whole issue of fear of lack of supply will start to seep in when they realize they are competing for rare pounds of uranium.” 

We also have to consider that a “decade of declining uranium prices has seen little investment in uranium mining, resulting in a projected supply deficit absent material increases in the uranium price.  Even with a material increase in the uranium price, it may take years before new sources of uranium are ready to be mined, due to delays associated with permitting for exploration and development of uranium mines,” notes uranium trader, Yellow Cake.

That’s great news for two of our favorite uranium stocks, Cameco Corporation (NYSE:CCJ) and Energy Fuels Inc. (AMEX:UUUU).

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