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Uranium looms as resources winner under Trump

Donald Trump’s upcoming presidency has led many investors to size up oil, coal and gold trades that could benefit from the sweeping changes he has promised.

But a growing band of specialist commodity traders think investors may be overlooking the one raw material in line for bigger price gains than others when the US president-elect takes office: uranium.

While interest in the key fuel for nuclear power and weapons may strike investors as somewhat macabre, a six-year downturn in the uranium market has convinced some that any indication of stronger demand could drive prices significantly higher.

Mr Trump has voiced support for nuclear energy and has indicated he could expand the US’s nuclear arsenal, threatening to reverse a decades-long push towards non-proliferation and arms reduction.

“Uranium traders have lots of oil envy,” says Roy Adams, who set up and ran uranium trading desks at Deutsche Bank and Lehman Brothers. “We think uranium — not crude oil — is unquestionably the most geopolitically sensitive commodity in the world.”

The uranium market has been in a state of near collapse since 2011 when the Fukushima disaster upended demand projections for the fuel as Japan and other countries such as Germany shuttered operations or cancelled new projects.

Uranium in its highly enriched weaponised form is one of the most tightly controlled substances on the planet. But the raw material, known as yellowcake or by its chemical symbol U3O8, is mined and traded with fewer restrictions.

Though yellowcake is stored and processed in just a handful of secure facilities around the world, it can change hands like other commodities, with spot trades accounting for about 25 per cent of all supplies, according to the World Nuclear Association.

In late November uranium prices plumbed a 12-year low of just $18 a pound, representing a 75 per cent drop since Fukushima as the market buckled under the weight of excess supplies.

A subsequent rebound of almost 35 per cent reflects optimism among uranium miners.

Alex Molyneux, chief executive of Australia’s Paladin Energy, scrapped the sale of a 24 per cent stake in its Langer Heinrich uranium mine in Namibia this week and says demand from the US nuclear industry has started to pick up.

“We have seen US buyers return to dip a toe in the market with a couple of major tenders just before Christmas,” he says.

This week Kazakhstan, which produces about 40 per cent of the world’s uranium, giving it an Opec-like grip on the market, announced significant supply curbs.

The decision by state-controlled Kazatomprom to cut output equivalent to 3 per cent of global supply pushed uranium prices up by more than 10 per cent on Tuesday and boosted the share prices of miners such as Canada’s Cameco.

“We believe that Kazatomprom is now transitioning from seeking greater market share to seeking greater margins,” says Matt Hasson of Numis Securities, arguing Kazatomprom may also choose to hold more strategic inventory rather than selling into the spot market.

IAEA experts examine the decommissioning work at the Fukushima Daiichi nuclear power station two years after the earthquake © FT montage; Greg Webb/IAEA/CC

Peter Reeve, chairman of Aura Energy, the London-listed uranium miner, says utilities are watching the supply cuts nervously as many have relied on cheap supplies in the spot market in recent years, shifting away from long-term contracts.

“I don’t think it’ll take a hell of lot to upset the apple cart,” he adds.

Still, despite Kazatomprom’s production cut, analysts expect supply to outstrip demand this year and next, with Macquarie forecasting a surplus of 15m pounds in 2017 (before the Kazakh cuts of about 5m pounds).

Stocks are also significant with about 688m pounds weighing on the global market, according to BMO. As such, a boost to demand may be needed to drive a sustained increase in prices.

That’s why the decisions made by Mr Trump when he enters the White House will be crucial for the uranium market. His energy policies could bolster nuclear power if he reduces or removes subsidies for alternative energy, even as it faces competition from coal and natural gas.

Potentially more important, the president-elect tweeted on December 22 that the US “must greatly expand and strengthen its nuclear capability” and was later reported to have said “let it be an arms race”. Russian president Vladimir Putin said the same day he needed to “enhance” his country’s nuclear forces.

Though a revival of a cold war-style nuclear arms race is neither imminent nor certain, the mere threat was heard loud and clear in the uranium market.

While nuclear experts say the US and Russia have enough uranium from stockpiles and older missiles for any expansion programme, both countries — and others — are still considered likely to move to secure additional or replacement uranium stocks.

“The US would be quite a big buyer if that does come to fruition and it would kick off a global arms race,” says Rob Chang, an analyst who covers uranium miners at Cantor Fitzgerald.

“If there is some confirmation [of nuclear expansion] I could [also] foresee some utilities deciding to secure their supply.”

Mr Adams, who left Deutsche Bank in 2012 to work with two non-profits, is now investing privately in uranium-linked stocks and European banks.

He argues that the engineers who make the majority of uranium purchases for power plants “are not risk takers” and will not hesitate to buy up uranium if they see if any sign of the market tightening.

“President-elect Trump made the case,” Mr Adams says. “In a single tweet.”

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