|
Published: July 14, 2010
Over the past three months, I've written
frequently about China's incredible appetite for fuels like
natural gas, oil, and coal. If you're an investor or a trader,
this is one of the "must follow" trends for the next decade.
Today, I encourage you to throw another fuel source onto the
watch list... uranium. China is making big ripples in this
commodity market as well. Here's why...
To meet its growing electricity demand,
China plans to build 60 new nuclear reactors within the next 10
years. China's high-growth cousin, India, needs 40 new reactors
in the next 20 years. That would increase the number of nuclear
power plants in the world by +23%.
This new Asian nuclear boom is expected to be the largest
period of nuclear power growth since OPEC's oil embargo. At its
peak, back in the 1980s, the nuclear industry started up a new
reactor every 15 days. By 2015, we could see a new reactor
coming online every five days.
Both China and India understand the implications of that growth.
According to Bloomberg, both countries are stockpiling the fuel.
China could purchase more than twice as much uranium as it will
use this year. The proposed reactors in China alone could
consume more than 30% of the uranium mined today. That's why the
country signed a 10-year, 10,000-ton deal with giant uranium
miner Cameco (NYSE: CCJ).
Looking at the past 10 years in uranium, it's easy to see why
China is stockpiling.
|
 |
Uranium enjoyed a huge rise from 2002 to 2007. This rise
attracted a tremendous amount of speculation, which ended badly
when it fell from $140 per pound to around $40 per pound. This
is a "blown-out" commodity that should get contrarians
interested.
Here's another reason to be interested: While we have an
impending explosion of demand from Asia, the industry's best
mine hasn't opened due to calamitous problems, which I told you
about in November 2006.
According to RBC Capital Markets, we will see the price of
uranium rise +32% next year. That's the largest growth since
2006, when uranium soared. One RBC Analyst put a target of
$56.25 per pound for 2010 and $60 per pound by 2015.
And, of course, the last bull market in uranium saw a +277% gain
in just 18 months. I'm not suggesting we'll see those types of
gains soon. Blown-out markets tend to move sideways for a long
time. But hoarding from India and China should keep a price
floor of around $40 per pound under uranium.
I suggest watching this trend and waiting for a bit of price
strength to assert itself. I want to see the train pick up some
momentum before getting on board. The 200-day moving average of
uranium prices is a good benchmark here. That's currently around
$42.50 per pound. If uranium can cross over that line, it will
be time to consider buying a big miner like Cameco, a
uranium-holding company like Uranium Participation Corp
(Toronto: U), or some small uranium exploration companies.
Like most commodities, this trend depends on when Chinese buying
starts moving prices higher. Keep it on your watch list and
you'll be ready to buy when the trend begins.
-- Matt Badiali
Editor
Growth Stock Wire
|
