Uranium: Contrarian Play on a Hated Asset
Contrarian investing is the purest expression of the "buy low, sell high" paradigm. It can net those brave enough to be "first in" some outsized long-term profits, asserts Peter Krauth, resource specialist for Money Morning.
That's why I'm excited to show you an asset that couldn't be more hated right now; after a years-long struggle, it's at the "point of maximum disdain." And that should be your first clue that the profits here could be huge.
There are lots of reasons for the mainstream to "hate" an asset. In this case, uranium production is too expensive. Currently, it costs more to produce a pound of uranium than it sells for.
The shortfall is so bad, almost none of the uranium companies can turn a profit at spot prices. Uranium prices were off 40% last year, hitting a 12-year low under $18 per pound. In fact, it was the worst-performing energy commodity of 2016.
The result is easy to predict. Worldwide uranium production has dropped off dramatically. A lack of profitability has caused some mines to either scale back production or shut down entirely. Despite annual global consumption around 68,000 tonnes, the sector only produces some 50,000 tonnes.
The only reason there hasn't been a supply crunch is because existing stockpiles are being drawn down — so far. That's not going to last.
Global uranium demand is ramping up, especially in Asia where China, India, South Korea, Taiwan, and China are all building new nuclear power facilities. The World Nuclear Association counts at least 60 reactors actively under construction globally.