Positive momentum is beginning to build for ASX uranium stocks after finding a floor in early July and supported by several macro demand themes coming out of Europe and the United States.
The Global X Uranium ETF has rallied almost 25% from the 10-month low it hit in July. On Tuesday, the ETF briefly rallied above its 200-day moving average for the first time since 9 June, a key price point that could indicate a recovering trend.
For the uninitiated, the ETF invests in a broad range of companies involved in uranium mining and the production of nuclear components. It has exposure to a few ASX-listed names including Paladin Energy (ASX: PDN), Boss Energy (ASX: BOE) and more.
Still, uranium spot prices remain relatively flat in the past few weeks, even as the stocks begin to show some strength.
Nevertheless, there several items in the news supportive of nuclear energy adoption, which has been driving buying across most uranium names.
The US Inflation Reduction Act includes a tax credit for nuclear power, expected to save as much as 38% of US nuclear power plants, according to Bloomberg.
The proposed US$15 per megawatt-hour credit for existing plants could help save between 22-38% of the nation's 93 reactors that are at risk of retiring in the 2030s.
The bill also includes a US$700m for high-assay low enrichment uranium (HALEU), a type of fuel expected to be used in the next generation of reactors. In addition to US$250bn for Department of Energy loans to help fund carbon-free technology currently in development.
Europe's deepening energy crisis has put nuclear energy back in the spotlight, especially for Germany.
Nuclear power accounted for 13% of German electricity supply in 2021, across six power plants. Three were switched off at the end of 2021, and the remaining three expected to be decommissioned this year.
Now, the Germans are looking at a potential extension for the remaining three.
Industry commentators have also suggested that certain retired power plants are in a good enough condition to restart should the need become immediate.
Likewise, French authorities have allowed five nuclear power plants to continue operating and discharge hot water into rivers amid a fourth heatwave this summer.
"I look at where we're at in the uranium sector right now, and I don't think the fundamentals for our commodity have ever been better," said Scott Melbye, Executive Vice President of Uranium Energy told Investing News.
"We have the classic makings of a supply squeeze," Melbye said, adding that "if we're going to fill the gap - the 70 million pound gap currently between production and global consumption of 200 million pounds - we probably need uranium prices north of US$60, US$70 a pound."
Separately, Morgan Stanley ranked uranium as rank 1 on its "Metals 7 Mining Commodity Thermometer", commenting that "in an increasingly bifurcated market, US/EU demand for non-Russian nuclear fuel will push prices higher to incentivise spare mine capacity."
The Uranium ETF is coming out of a 4 month long correction and trading around where it was 16 months ago. So it isn't exactly breaking out to all time highs so to speak.
These stocks have run up pretty hard in the last few days, mostly 10-15% above their 20-day moving averages.
In terms of the broader market, the ASX 200 is beginning to struggle for upside after an almost 10% rally from June lows.
A pullback is on the minds of many investors, and the upcoming US inflation print could very well be the catalyst to provide the market and risk assets like uranium with more direction.
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