Uranium: A Potential Political Trade

At this point, it looks like the risk of a real war between the world’s two largest militaries has eased. However, the confrontation is far from over.

For now, focus has just shifted to financial attacks. The US moved first, implementing a suite of new sanctions. Russia responded by introducing legislation that it could use to tighten or even cease uranium trade with the US.

A draft law now before the Russian National Parliament (the Duma) calls for stopping international cooperation in the aircraft and nuclear industries, not only with the US but also with other foreign states that support US sanctions against Russia or support Washington’s position on Syria.

If this law passes, it could create a serious uranium supply shock. The US relies on nuclear reactors for about 20% of its electricity. Only 4% of the uranium feeding those reactors is produced domestically; the rest is imported and almost half comes from Russia, Kazakhstan, and Uzbekistan.

In other words, America is highly reliant on Russia and Russian proxy nations for its baseload uranium requirements. The US relies on Russia alone for between 13 and 16% of its uranium needs.

That’s why this law will make front-page news if approved by the Duma. If that happens, investors will scramble to get uranium exposure.

Those who follow the sector are already playing this opportunity. Just look at the share price of key uranium sector player Cameco:

Depends on your appetite for political risk. Russia hasn’t actually banned uranium trade with America yet. If it does, the uranium price will spike. I think the spike would be big enough to be worth trading but I wouldn’t assume it would kickstart a new uranium bull market, so buying on this opportunity means being ready to sell pretty much as soon as it happens, if it happens. Certainly a good number of naysayers think it’s all a pressure tactic and that Russian uranium supplies are just fine.

For context: 15% of US uranium requirements is about 7 million lbs. per annum. In the last two years we’ve seen far more supply come offline than that – not just shift destinations, but come offline – as Cameco, Kazatomprom, and Areva put production, and yet uranium pricing has remained pretty stagnant. That’s why I’m not convinced this move, if it happened, would kickstart a uranium bull market.

Uranium will yet have its day. Demand will outstrip supply in the medium term and prices are nowhere near high enough to incentivize new mine builds. If Russian and America get into a real spat, Putin could pressure Kazakhstan to suspend its uranium trade with America, which is larger than Russia’s. Escalation of that nature would probably turn this spike into something more substantial for the sector – but unless I see that happening, I think this uranium development will either fizzle or create a spike that fades.

As such, if you really like the uranium space and watch it closely, buying a big producer (like Cameco) or a company with the ability to quickly start producing uranium in America (like Uranium Energy Corporation) makes sense. In fact, the latter makes a lot of sense, especially if you are inclined to believe the Russia-US spat will grow. But if you decide to play, be ready to take profits because political moves can disappear as quickly as they appear!