The recent plunge in oil prices is just the latest bit of bad news for investors in commodities. Slumping Chinese demand for iron ore, copper and many other items has led to a forgettable year for metals as well. Even the safe havens of gold and silver are losing their luster.

Few expect a rapid price rebound for many commodities in 2015 as producers must reckon with too much capacity installed a few years ago. It could be a year or two before the current pullback in mining and exploration leads supply to fall back below demand. Jim Rogers, a perma-bull on commodities, can only muster deep enthusiasm for agricultural commodities these days.

#-ad_banner-#But there is one commodity that is bucking the global down-trend: Uranium. And a deeper look at why uranium is rebounding now provides insights as to why it should also perform well in 2015 and 2016. For investors, it’s a chance to profit from an otherwise unloved asset class.

After Fukushima
We’re coming up on the fourth anniversary of the nuclear disaster in Fukushima, Japan. The events of March 2011 led the Japanese and German governments to announce plans to radically reduce their use of nuclear power. China, which had been expected to be a key driver of nuclear energy in coming years, also decided to freeze its plans while the issue received more scrutiny. That led to expectations that demand for uranium would dry up, right at a time when uranium miners had been making plans to boost output.

Just prior to the Fukushima tsunami and eventual nuclear crisis, uranium traded for $72 a pound. By that summer, prices slid below $50, and by the summer of 2014, moved below $30. Since then, the commodity began to spring back to life. It’s still well below its five-year highs, but uranium is surely the best-performing commodity of the second half of 2014.

What’s behind the rebound? We can point to several potential catalysts:

1.    Japan, which initially sought to shut down all nuclear power plants, is slowly having a change of heart after realizing both the climate and trade balance implications of a heavy reliance on fossil fuel imports. Roughly a month ago, a pair of local governments in Japan gave the green light to nuclear power plant restarts. As that article notes, “other power companies hope to follow Kyushu Electric Power’s lead and reopen reactors next year.”

Is this the start of a trend?  As my colleague Dave Forest, author of our Scarcity & Real Wealth newsletter recently pointed out, “the fact that Japanese utilities are continuing to take uranium supply suggests they are fully anticipating a near-complete restart of their nuclear fleet.” That’s a bold prediction that few others are making right now.

2.    Nuclear power plant operators in other countries, which had been content to work down stockpiles, now appear to be placing more orders. It’s not clear if they are doing so because current stockpiles are too low, or if they want to lock in prices now before prices rise even higher. As Raymond James’ David Sadowski recently wrote in a note to clients, “we are hearing that several utilities are in the market looking for supply.”

3.    The market also appears to be responding to an emerging long-term dynamic. Over the past few years, a range of uranium miners including industry titan Cameco Corp. (NYSE: CCJ) decided to close mines or cancel existing plans to develop new ones. As a result, industry supply is expected to steadily diminish.

Edward Sterck, who follows the sector for Canada’s BMO, thinks the market will be undersupplied by 2018. “When one considers that it takes five years or longer to put a uranium mine into production … we’d have to see some pretty significant changes very soon in order for new supply to be stimulated to fill that shortfall,” he told Canada’s Business News Network.

4.    Perhaps the most important catalyst: China, which recently placed an even greater emphasis on renewable energy and away from fossil fuels. After a Japan-related pause, China is now building new power plants at a rapid pace. The company has roughly 20 reactors in current operation, with another 25 under construction. The Chinese government has talked of an eventual goal of more than 200 nuclear power plants. (For context, the U.S. currently operates 100 nuclear reactors at 62 facilities.)

How To Play The Rebound
Dave Forest cites Uranium Participation Corp. (OTC: URPTF), which invests in uranium oxide concentrates, as the best pure play on a uranium rebound. Shares have slid to a recent $4.40 from around $10 in late 2010.

I prefer the ETF route. The Global X Uranium ETF (NYSE: URA), which tracks the Solactive Global Uranium Index. The index has mirrored the slumping fortunes of the world’s top uranium miners and refiners. Roughly half of the fund’s holdings are located in Canada, led by a 23% stake in Cameco. The portfolio appears nicely balanced between established large miners, and asset-rich, development stage junior miners. To be sure, the ETF has performed badly in recent years, but a rebound in uranium should lead to a share price reversal. This ETF carries a 0.69% expense ratio.

Risks To Consider: Another major nuclear incident may doom this industry to long-term irrelevance.

Action To Take –> Forget about slumping oil prices. They will eventually reverse course thanks to supply destruction. More importantly, major energy consumers in China, Japan and elsewhere understand that greenhouse gases need to come under control and only nuclear power can deliver region-wide power. Solar and wind will always play a role in the clean energy picture, but they simply lack the scale to truly supplant fossil fuels. Uranium remains, for the most part, out of favor, but the long-term supply/demand dynamics appear to be changing — for the better, and this is a fine time to start adding exposure to your portfolio.

If you want access to regular analysis, insights and investing strategies for the uranium and broader natural resources markets, then Scarcity & Real Wealth should be your trusted guide. Dave Forest, the newsletter’s author, recently found a huge opportunity that could earn 29% gains by February… but only if you invest by December 10, 2014. Get all the details here.