Uranium demand is increasing, supply is decreasing, and the end buyer is almost indifferent to the price it pays. And the price is very wrong.

Lots of reasons. Here's a breakdown by geography:

In 2011 an earthquake and a tsunami struck Fukushima, Japan, which caused equipment failure and three nuclear meltdowns. Following the accident, Japan shut down all its nuclear reactors. The world lost a big buyer of uranium and gained a seller.

The Fukushima disaster spurred a global backlash against nuclear power and curtailed demand for uranium. Countries began releasing plans to shut down their nuclear reactors— Spain by 2020, Germany by 2022, and Belgium by 2024.

Russia was dismantling it's nuclear arsenal, down-blending its highly-enriched uranium, and selling it to the US. This created further cheap supply of uranium and more downward pressure on price.

Kazakhstan was ramping up its uranium production. In the beginning of the century, Kazakhstan was responsible for less than 10% of the global uranium supply. Now it's around 40%. They use a mining method called in-situ leaching which dramatically reduces costs. The declining exchange rate on the Kazakh tenge, their currency, also helped exports a lot too.

Underfeeding is when you feed less uranium into the centrifuge of the nuclear reactor. As demand decreased in the 2010s, nuclear plants faced a problem: A centrifuge is built to always be spinning, and stopping the big plates damages them. Instead of stopping production, it is better to feed less uranium and simply enrich it longer. The longer length of time increases the quality of the uranium, resulting in the same potential energy output. But at the same time this process requires less input uranium. That means that when the schedule isn't packed, an enricher can slow things down, use less uranium, but not decrease output. Using less uranium leaves extra left over, which can be sold on the open market. That reselling is extra supply and a further downward pressure on uranium's price.

All of this adds demand (or restricts supply) that wasn't accounted for. And in the uranium market, new supply takes a long time to arrive.

New research suggests that particulates released from burning fossil fuels is much more deadly than previously thought. A new peer-reviewed study published in Environmental Research puts the global death toll at more than twice that of previous estimates. According to the study, exposure to fine particulate matter from burning fossil fuels was responsible for about 8.7 million deaths globally in 2018. That’s roughly the same number of people living in New York City or London. Fossil fuel pollution allegedly kills more people each year than HIV, tuberculosis, and malaria combined.

Sentiment is shifting fast. Nature conservancy groups are now advocating in favor of uranium in order to move away from coal. One pound of uranium is capable of producing as much energy as three million pounds of coal.

The nuclear fuel cycle is long. It includes mining, conversion, enrichment, and fabrication. Each one of these processes happens in a different part of the world. For example, uranium mined in Australia might be converted in Canada, enriched in the UK, fabricated in Sweden, and enters a nuclear reactor in Brazil. It normally takes between 18 to 24 months for the cycle to be completed.

If a nuclear reactor has inventory today that should last until 2023, they're pretty much working with a just-in-time process. And you don't want to operate a $10 billion facility using the just-in-time process, so it is normal that they carry a lot of inventories in different stages of the cycle to last two years, and most likely more.

If you look at the level of inventories today, in some cases, it's less than two years. It's the lowest it's been over the past 15, maybe 20 years.

There will also be the issue of finding new uranium to mine. This takes way longer. You have to explore and find the uranium, permit and commission the mine, invest in infrastructure, raise capital, and hire people. It can take ten years, maybe more in the developed world, to bring a new mine online. And even then, only one in 50 projects successfully becomes a producing mine. This is a likely bottleneck over the course of the next decade.

Nuclear reactors are very expensive to build, but they are relatively cheap to run. The price of uranium is extremely low in comparison to the safety and maintenance costs incurred by a nuclear plant. Even a quadrupling of uranium price would hardly move the needle. Uranium prices do not affect nuclear utilities much— they are price insensitive. Their priorities are security of supply, diversity of supply, and time. Cost is not the major issue.

I don't have specific investment advice, but I am personally looking into:

Cameco Corp ($CCJ) — The world's largest publicly traded uranium company, based in Saskatchewan, Canada. In 2015, it was the world's second largest uranium producer, accounting for 18% of world production. (Also, Cameco's mentions on Wall Street Bets is heating up big time).

Sprott Physical Uranium Trust (Toronto Stock Exchange: $U.UN) — The world's largest physical uranium fund.

North Shore Global Uranium Mining ETF ($URNM) — Made up of a basket of companies that are involved in the mining, exploration, development and production of uranium.

Price targets are subjective and unreliable. I don't have one, but to give an idea from those more experienced than I: professional uranium investor Kevin Bambrough thinks uranium could hit $180/lb by the end of March 2022. (It's at $40/lb as of now, so about a 4.5x in six months).

Anyone else interested in the uranium trade? Got different ideas on how to invest in it? Would love to hear your ideas in the comments ↓