Overview of the uranium market
Uranium is a radioactive element which serves several practical purposes. Uranium ore can be mined by underground or open-cut methods, depending on its depth. After mining, the ore is crushed and ground. It is then treated with acid to dissolve the uranium, which is recovered from solution. A kilogram of natural uranium produces as much heat as 20 tonnes of coal. This heat can be harnessed to make steam and generate power, this use provides the largest demand for Uranium. However it can also be used for nuclear weapons, primarily the nuclear fission warheads such as those that were launched at Hiroshima and Nagasaki during the second world war. Although countries such as the USA and Russia have moved on to newer nuclear fusion technology for their warheads (which uses hydrogen) many countries who are just developing their warheads (such as North Korea and Iran) plan on using the nuclear fission bombs which require uranium. The last major use of Uranium is as an investing safe haven, this is because Uranium shows little correlation to the overall market, and can serve to diversify ones portfolio. Uranium prices have been declining for some time and have been the worst performing raw material this year
Oversupply from mines in Kazakhstan, Canada and Australia has seen uranium futures drop 18 percent this year, the biggest loss among 80 commodities tracked by Bloomberg except carbon credits, . But as supply diminishes and demand improves, stockpiles will be eroded and the slump will reverse.
Uranium Demand for use as Nuclear Energy
Roughly 14% of the world’s energy is provided by nuclear power (which requires uranium as the core ingredient), and this percentage is expected to grow in the near and long term future.
50 countries are already operating, building, or simply considering nuclear power as a viable solution for electricity generation. Half of them are “newcomers”, aiming to develop nuclear power production in order to cope better with the challenges of affordable, domestic, CO2 free energy production. Despite the challenging economic climate, global demand for uranium is expected to grow significantly in the coming decade.
Prospects for new nuclear power stations remain strong in China, India, South Korea and the UK.
China, which currently accounts for 7% of current global demand in uranium, has reaffirmed its intention to reach a target of 50GWe of nuclear power by 2015–2016 (compared to 10.8GWe installed nuclear capacity at the end of 2010.) With around 30GWe under construction, accounting for 46% of all nuclear reactors under construction in the world, China will remain a key driver of the uranium demand market.
Uranium Demand for use in Nuclear Weapons
As discussed in the introductory segment, A secondary demand for uranium is due to it’s use in nuclear weapons. Countries such as Iran and North Korea have already began to purchase Uranium for this purpose, and not only will they continue to do so, but it is likely that other countries will follow suit. An August 2009 report from the Washington, DC-based Institute for Science and International Security, estimated Iran has enough fuel for two nuclear weapons by February 2010, and as tensions continue to heighten over the threat of a possible nuclear war, it is almost a forgone conclusion that this number will increase.
President elect Donald Trump has openly stated that he’s in favour of potentially seeing countries like Japan, South Korea and even Saudi Arabia develop their own nuclear weapons because “it’s going to happen anyway.”
Trump also stated that the United States spends too much money protecting countries like Japan and Saudi Arabia and that”we can’t afford to do it anymore.” There is a very real possibility that the US will back out of its agreement to protect it’s Nato allies, an event that would likely cause these countries to invest in Nuclear weapons and drive up the price of Uranium.
Demand for Uranium as Investment Portfolio Diversification
With growing uncertainty in the world financial markets due to events like Brexit, and the election of the notoriously unstable Donald Trump as president of the United States, many investors are turning to “safe havens” to stash their money. The obvious choices such has gold have seen a large rise due to the current uncertainty, however the uranium market is also likely to benefit from this effect. As concerns grow regarding international conflict, trade wars, and actual military wars, the Uranium markets are likely to benefit as it provides an avenue for investment that carries little correlation to the overall market.
List of nuclear stocks you may want to research further
If you are interested in investing in uranium, here are some of the companies available to North American investors which will benefit the most from a rise in Uranium prices.
- Uranium Participation Corp. (TSE:U)
- Uranium Resources Inc (NASDAQ:URRE)
- Uranium One (TSE:UUU)
- USEC inc (NYSE:LEU)
- Energy Fuels Inc (TSE:EFR)