What happened

Uranium mining stocks are hot Friday. As of 2:05 p.m. EDT, Energy Fuels (UUUU -0.44%) shares are up 11.3%, followed by Denison Mines (DNN 0.83%) with a 13.5% gain, Ur-Energy (URG -0.56%) is up 13.7%, and Uranium Energy (UEC -2.80%) is leading the pack higher -- up 14.1%

And you can thank Sprott Physical Uranium Trust Fund (SRUU.F -3.76%) for that.

Drawing of two nuclear reactors generating steam.

Image source: Getty Images.

So what

As Financial Times reports today, the price of uranium yellowcake has soared to its highest level seen since 2014 as private investors bid against nuclear power companies for access to the fuel. Sprott in particular, reports Financial Times, has "snapped up" 6 million pounds of physical uranium, worth about $240 million, over the past couple of months, bringing its total holdings to about 24 million pounds.  

According to Bloomberg, that's equivalent to about 26% of all uranium sold all around the world in 2020.  

Factor in the 16 million pounds of uranium held by London's Yellow Cake PLC and these two companies alone now have a stranglehold on uranium supply -- controlling about 43% of annual demand. (Although according to Financial Times, that demand is likely to more than double in size through 2030.)

Now what

In addition to the natural effect of buyers bidding up prices, this anticipation that demand for uranium will grow, even as "supply is set to fall ... 50%," is a major reason why the price of uranium has now spiked to $40 a pound from prices that were closer to $30 at the beginning of this year.

This, in a nutshell, is why uranium company stock prices are shooting to the moon today -- but beware: According to MiningReview.com, uranium needs to sell for about $60 a pound or more before uranium companies will decide it is profitable enough to invest in greater production. On the one hand, that implies that prices -- and stock prices -- may keep on rising until we reach that level, as supply continues to lag rising demand. But once uranium prices rise high enough to "incentivize" greater production, both uranium prices and the stock prices of the companies that produce the stuff could quickly fall back again.

Or put more simply: Enjoy this rally while it lasts, because sooner or later, this cyclical industry is going to cycle back down again.