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The Next Great Chinese Commodity Hoarding Story

By Matt Badiali, editor, S&A Resource Report
Wednesday, 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.
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 (CCJ), a uranium-holding company like Uranium Participation Corp (U.TO), 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.
Good investing,
Matt Badiali

In The Daily Crux
Market Notes
"Fear Index" drops eight days in a row, down more than 30% so far this month... we're right back to sunshine and lollipops.
Global brewer Anheuser-Busch InBev touches fresh 52-week high.
Chilean brewer CCU joins BUD on new-highs list... along with a Chilean bank (SAN) and airline (LFL).
Earnings today... Marriott (hotels), Progressive (insurance).
Market Watch
Symbol Price
S&P 500 1095.17 0.0% +20.9%
Oil 34.66 -0.2% +7.9%
Gold 118.30 -0.1% +30.3%
Silver 17.96 +0.8% +41.2%
US-Dollar 83.34 -0.2% +4.1%
Euro 1.27 +0.1% -8.8%
Volatility 24.89 +1.3% -0.5%
Gold Stocks 460.58 0.0% +40.4%
10-Year Yield 3.05 -1.9% -11.6%

World ETFs
Symbol Price
USA 109.65 0.0% +21.0%
Canada 26.31 -0.5% +24.6%
Russia 17.75 +0.5% +21.7%
India 31.20 -0.6% +10.4%
Israel 14.10 -0.5% +28.0%
Japan 9.67 +0.7% +5.0%
Singapore 12.02 +0.6% +32.8%
Taiwan 12.14 +0.8% +17.0%
S. Korea 48.36 +1.0% +38.3%
S. Africa 57.04 -0.6% +24.8%
China 40.48 -0.9% +8.2%
Lat.America 44.39 -0.4% +34.7%

Sector ETFs
Symbol Price
Oil Service 103.47 +0.4% +9.4%
Big Pharma 61.45 -0.3% +3.4%
Internet 53.92 -0.4% +28.2%
Semis 13.39 -0.7% +21.7%
Utilities 30.01 +0.0% +8.8%
Defense 16.83 +0.4% +22.4%
Nanotech 8.69 -0.3% +1.4%
Alt. Energy 9.05 +0.6% -0.9%
Water 15.83 -0.2% +12.6%
Insurance 14.81 -0.3% +26.5%
Biotech 17.64 -0.6% +33.7%
Retail 16.17 -0.3% +14.4%
Software 21.50 +0.4% +31.5%
Big Tech 45.56 +0.5% +27.6%
Construction 11.67 -0.9% +8.9%
Media 12.03 -0.5% +41.7%
Consumer Svcs 56.89 -0.3% +29.9%
Financials 53.04 -0.7% +26.4%
Health Care 60.18 +0.1% +12.7%
Industrials 54.27 +0.2% +32.6%
Basic Mat 57.47 -0.4% +37.1%
Real Estate 49.58 -0.6% +57.8%
Transportation 77.31 +0.8% +35.5%
Telecom 19.61 +0.2% +15.7%

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