Trading the Uranium Market

The Fukushima reactor meltdown in 2011 glutted the uranium market. Uranium, which is largely used to fuel nuclear power plants, has done little since even though the market could be much more glutted than it currently is. 

Uranium’s two biggest producers are Kazakhstan’s National Atomic Co. Kazatomprom JSC GDR (also simply known as Kazatomprom) and Canada-based Cameco.

Both have exercised production discipline to avoid putting too much of the metal into the market.

 

Uranium Spot Price

(Source: Trading View)

 

Governments, including the US and China, also see a role for nuclear power as part of the push to lessen the world’s reliance on carbon. In that vein, you could argue that uranium is part of ESG-related shifts in some way. 

Even though the raw material hasn’t done much, uranium producers are seeing demand for their shares. URA, the market’s largest uranium ETF, is comprised of various producers of the metal and other nuclear components, and saw a big boost from late-2020 to early-2021.

 

Global X Uranium ETF

 

Because of the price rise, miners looking to get into the uranium game are now raising money to buy uranium – i.e., the metal they’re trying to mine. 

About three-quarters of uranium ore concentrate is sold to nuclear power plants in the form of long-term contracts. This is unlike most other commodity markets.

Companies that are looking to get into the uranium market are purchasing uranium ahead of time. This helps to:

a) build up collateral to get more ample and cheaper funding for new mines

b) to show nuclear plants that they have the uranium available when solidifying deals

This, in effect, helps take supply out of the market. Holding all else equal, that can help prices, which have been flat to down ever since uranium futures were established in 2007 on the CME Globex and CME ClearPort trading platforms. 

Back in June 2007, uranium futures prices stood at up to $140 per pound. This dropped to $94 per pound in February 2009, and $72 in January 2011. 

By the early-2020s, they mostly traded within a $25-$35 per pound range. 

U3O8 is the most popular price for uranium, a weekly spot price for a semi-processed form of the metal. 

 

The futures market for uranium

The futures market for uranium (NYMEX: UX) doesn’t have a lot of volume or liquidity. There is only a smattering of transactions in the spot uranium market each week. 

The uranium spot market typically does less than 100 million pounds per year, though usually higher than 50 million. 

The Global X Uranium ETF trades on the NYSEARCA under the ticker URA. ETF form is the easiest way for most individual investors (and even institutional investors in most cases) to gain access to the uranium market.

URA’s assets under management are typically around $500 million. That’s only about half the size of the bitcoin market, for example. So it’s highly illiquid. 

Uranium is difficult to own in size accordingly.

 

Big producers’ and investors’ roles in the uranium market

Kazatomprom and Cameco have reduced production to give prices a boost. 

To go along with investors’ desire for less carbon-intensive companies, this has boosted the stocks of smaller uranium companies.

In turn, they’ve been able to turn these higher stock prices into new capital, which they’ve largely used to purchase uranium – even well before they plan to mine it out of the ground. 

Denison Mines Corp bought 2.5 million pounds of uranium for around $74 million. The money to do so came through selling warrants and stock. 

In turn, it can use the uranium as collateral to get cheaper funding costs to develop its Wheeler River project in the eastern portion of the Athabasca Basin region in northern Saskatchewan, Canada, where it owns a 90% stake (with JCU owning the other 10%). 

Once the mine is brought online, uranium can be sold to utilities. If the project runs into delays, cost overruns, or other unexpected events, the uranium offers a type of reserve asset. 

The metal can also be sold if prices rise. 

All in all, capital market enthusiasm for the companies producing uranium has seen a resurgence. 

enCore Energy Corp (based in Vancouver, Canada) bought around 200,000 pounds of uranium in March 2021 after raising the equivalent of about $12 million. It initially targeted around $6.5 million.                                                                                                                                            

Other investment vehicles are getting into the uranium market to act as a conduit for traders and investors who are trying to get better access to it. 

In order to do so, these funds need to buy uranium using the proceeds from selling shares. Yellow Cade PLC is a London-based company that’s created an exchange-traded fund for uranium. 

After raising $140 million from share sales, it bought around 4 million pounds of uranium. 

 

How much does global conflict have to do with uranium demand?

We are moving into a period where there’s more global conflict. The world should expect to look to have a more bipolar global bifurcation with the rise of China in the East.

China has the largest share of global trade, and is behind only the US in the size of its economy and the size of its bond and equity markets. Its military is gaining strength. Its currency, the yuan (also known as the renminbi) is lagging, but this is natural, as existing reserve currencies tend to be entrenched even after their fundamental decline. 

Broadly the US (and its allies) and China (and its allies) are in a variety of various conflicts along different strategic dimensions that will be with us for a long time:

You could also say there’s an internal war, that’s very important where people are divided in various ways.

The US and Russia have the largest numbers of nuclear warheads by a wide margin, which has roots going back to the 1940s and 1950s. 

 

(Source: icanw.org)

 

Russia is a natural ally of China. China can provide money and Russia can provide oil and a more robust nuclear arsenal than China has (in terms of the obvious benefits).

For investors, it’s in the back of everyone’s mind that stronger nuclear armament for the sake of protection could potentially boost the overall global demand for uranium. 

 

Final word

Uranium is an industry that’s coming back after a long period of stagnation and decline.

You aren’t likely to see huge price increases in it given the dynamics of long-term contract settlements and little movement or speculation in the spot market. But with uranium-producing companies seeing a boost in value, it’s possible that the metal could follow.

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