Uranium - Still Heading Higher
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The good news is that uranium prices continue their recovering from their multi-year lows, clocking in at $28.95 at last read. As you can see in the chart below, the current rally is substantially higher and more durable than the failed rallies we saw in 2017 and 2018.
The bad news is that Bloomberg reports that the worldâ€™s top uranium producer, Kazakhstan, is planning to increase output by 4% this year.
But is this really bad news?
Given that the country had announced plans to cut output by about 20% to help reduce the supply glut, concern for uranium prices is understandable. I donâ€™t think itâ€™s correct, however, to conclude that Kazakhstan is changing its tune.
First, note that reports indicate that Kazakhstan did indeed reduce output by 18.8% in 2018. Close enough.
Second, I understand that the 20% reduction target was for planned output, not from some absolute number. Planned output varies from year to year. This means that planned output before the reduction would have increased 2019 production more than the 4% currently on tap.
Kazakhstan has not abandoned its plan to shore up uranium prices.
It will, of course, be more than happy to change course when higher prices justify it. Top Canadian producer Cameco will do the same.
This will be a very good thing to see when it happens; it will tell us that the worldâ€™s most informed players see sustained higher prices going forward.
But for now, the worldâ€™s biggest uranium producers remain in glut mop-up mode. Thatâ€™s a good thing too.
The real bad news, for those of us who speculate on uranium stocks, is that many shares in uranium companies continue rising and falling with the broader equities markets, rather than tracking uranium prices. That made for a disappointing Q4 2018, even though uranium prices were up for the quarter.
Back on the plus side, the apparent dovish turn of the Fed has boosted mainstream equities, and may well continue doing so all year. If so, that should remove the headwinds from uranium stocks, which should go back to rising with uranium prices.
Thatâ€™s my base case expectation. I have invested accordingly, and have not sold any of my uranium stocks.
That said, itâ€™s possible that something else could smack equities in general down again, hitting uranium stocks as well. This worries me more than fluctuations in the price of uranium.
I do remain very bullish on uranium prices in 2019.
But Iâ€™m less certain about the equities than I was before they disconnected from uranium prices last quarter.
Bottom line: Iâ€™d like to see uranium prices firmly back in the driverâ€™s seat for uranium stocks before I do any more buying in this sector.
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