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Trade war enters Uranium sector as US launches investigation into imports

19 Jul 2018 | by: James Moore

US-based Uranium stocks received a boost yesterday after the Trump administration began an investigation into imports of the metal, a key ingredient in nuclear power generation. Commerce secretary Wilbur Ross said on Wednesday that his department will look at whether imported uranium ore and related products threaten national security.

The investigation was requested by domestic uranium-mining firms UR-Energy and Energy Fuels, who claim that low-priced imports supported by foreign government subsidies have forced them to slash jobs recently. According to The Seattle Times, if the US government determines that unfair trade practices are hurting domestic mining companies, it can recommend remedies such as strict quotas and temporary tariffs.

Following the news, shares in Energy Fuels surged by as much as 14pc and UR-Energy climbed by 12pc. UK firms with Uranium interests offered a mixed bag of performance today. As at the time of writing, Aura Energy (LSE:AURA) was up 2.1pc to 1.2p while Yellow Cake (LSE:YCA) was down at 198p and Berkeley Energia (LSE:BKY) had fallen 1.8pc to 41p.

Nuclear power – widely supported by President Donald Trump – currently provides for 20pc of US electricity. The country mostly imports Uranium from Australia, Canada, Kazakhstan, and Russia.

‘If we did not take this action, this industry would become extinct,” said Jeffrey T. Klenda, chief executive of UR-Energy. “And if we allow it to die, resurrecting it will be monumentally expensive. We cannot leave the fuel cycle in the hands of Vladimir Putin and his confederates, and increasingly the Chinese.’

However, the investigation was not welcomed by everyone, with many nuclear power producers warning that sharp restrictions on uranium imports could lead to the closure of plants due to greater operating costs. After the announcement of the investigation, nuclear power plant operators Entergy and FirstEnergy fell by as much as 1.7pc and 1.9pc respectively. Likewise, nuclear generator Exelon Corp also declined.

Analysts also warned that the investigation risks hurting the long-unloved Uranium sector as it begins to show signs of a potential recovery. For example, Scotiabank analyst Orest Wowkodaw said that ‘artificially propping up uneconomic and high-cost U.S. volume would only serve to further depress the still-weak uranium market as foreign low-cost volume would still need to find a home.’

Uranium prices were severely hit in 2011 when an earthquake and tsunami triggered the worst nuclear accident since Chernobyl at the Fukushima Daiichi nuclear power station in Japan. Three of the six reactors at the plant sustained severe core damage and released hydrogen and radioactive materials. Despite no workers dying from radiation positioning, the disaster was enough to significantly damage global attitudes towards uranium and nuclear power, and prices fell off a cliff.

Although prices have failed to recover from the disaster, they appear to have bottomed around the $20/lb mark, where they have more or less remained for some time. With nuclear power capacity ‘increasingly steadily’ worldwide, according to the World Nuclear Authority, and uranium supplies running thin thanks to low prices, many believe that a re-rate is on the cards for the metal. This dynamic is helped along by the fact that it takes a very long time to get a uranium mine into production – once the stockpiles that have built up since the Fukushima disaster start to run low, it may be hard to quickly replace them.

Author: Daniel Flynn

The author of this piece does not hold a position in the company covered in this article



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