☢️ Your Guide To Investing In Uranium, A Weapon, An Alternative Power Source, & A Financial Asset
Yes, uranium is a dangerous element that poses a threat to humanity if collectively, we let it. However, it also has the potential to transform the energy landscape, providing societies with cleaner energy instead of using fossil fuels. To put things into context, a typical nuclear reactor uses about 27 tonnes of uranium each year, whereas a coal power plant would need about two and a half million tonnes of coal to produce the same electric output. Fun fact: nuclear reactors are essentially just large kettles. The heat comes from chain reactions from uranium, and the steam from boiling water turns the steam turbines to generate electricity.
What Can It Do For You
🧺 Portfolio Diversification. As always, adding commodities to your portfolio can help diversify and lower risk. Adding uranium to your portfolio means owning an asset that tends to act differently to other asset classes, and even to other commodities. As long as demand for electricity remains strong, demand for uranium should also remain strong.
💰 Profit. Demand for electricity will always be there. In fact, with an increasing global population, urbanisation in emerging economies, & infrastructure & construction projects, more and more electricity will be required. With carbon emissions & climate change being at the forefront of future development plans, nuclear demand could grow, potentially marking an end to the subdued uranium market this past decade. That being said, a play in the uranium market will require a long-term strategy, which would involve looking at supply cuts from uranium producers, new nuclear power plant construction plans, increasing energy demand from emerging economies like China, as well as the general vibe that countries have towards uranium as a “greener” power alternative.
What Affects Uranium Prices
There are several key factors that are involved in moving the price of uranium:
- 🇰🇿🇨🇦🇦🇺 Kazakhstan, Canada & Australia Production. Kazakhstan alone produces 40% of the world’s uranium supply. Add Canada & Australia’s output, and combined, they produce roughly 60–75%. Disruptive events or decisions made by the companies involved can certainly have an effect on prices.
- ⚡Nuclear Energy Demand. Arguably the biggest factor in moving uranium prices. According to the World Nuclear Association, around 10% of the world’s electricity is from nuclear in 2018. France generates three-quarters of its electricity from nuclear. 2019 represents the 7th consecutive year in which global nuclear electricity production has risen.
- 🇨🇳🌍 Emerging Market Demand. The International Energy Agency forecasted that emerging economies will account for more than 90% of net energy demand growth by 2035. Should governments stick to renewables & low-carbon sources, then this will certainly increase demand for uranium.
- 🔄 Substitution. Substitution can also affect uranium prices. Low-priced alternatives like natural gas could essentially slow nuclear energy adoption by energy companies. However, with climate change & “green” tech being more of an issue in the eyes of government policy makers & the public, this could lead to a shift in the rate of adoption. Uranium also has competition in its own arena — thorium. More and more research regarding thorium suggests that it’s a cheaper, cleaner, safer, & a more abundant alternative to uranium. R&D progress could potentially result in increased adoption & market share of thorium over uranium.
- 📈 Stock Levels. Stock/inventory levels can certainly play a part in affecting uranium prices. Nuclear power producers have built up their uranium inventories over the years, taking advantage of low prices. When uranium producers cut supply, power producers then have to rely on stock levels, a signal that supply isn’t enough to fulfil demand.
- 🌎 Global Economic Strength. During periods of strong, global economic growth, countries worldwide invests in large-scale infrastructure & construction projects. This means that consumers & industries use more electricity, which can certainly mean more demand for uranium.
- 💥 Another Nuclear Accident. Should another nuclear accident happen (like Fukushima & Chernobyl), this could set a serious setback for the industry & change the public’s perception on nuclear energy.
🎢 Explaining Uranium’s Roller Coaster Price Action
You can see from the price chart for uranium that it really went through a wild roller coaster ride.
- Mid-2007 — The steep price rise was due to disruption in the supply side. A big Canadian mine flooded, which delayed supply to the market. Meanwhile, global energy demands were increasing, with nuclear energy playing an important part in meeting these demands. It peaked at $136.22.
- 2008–2010 — The 2008 economic crisis knocked. Sent all kinds of shockwaves throughout entire financial markets, including uranium. It was a battle between large scale sell-offs by bigger market participants and hedge funds, and speculative buyers who were attracted to the steep decline in prices. Prices were between ~$40-$90 during this period.
- 2011 — Signs of economic recovery & still-rising demand meant prices are now back up to roughly the $70 mark. Unreliable prices in prior years meant that uranium mining companies effectively shelved new exploration & development projects, contributing to the price recovery.
- Post-2011 slide to present day — The Fukushima Daiichi nuclear disaster happened in March 2011. As you can imagine, this made everyone reassess nuclear energy as an alternative. Fears from the public made demand drop, on top of excess supplies in the market. It reached its lowest in November 2017, at $18.
What Is It Used For?
There are three main uses of uranium:
- ⚡ Nuclear Power. Uranium is used to fuel nuclear power plants. The energy created by uranium generates steam, which turns turbines, which then generates electricity.
- 🎖️ Military. Not only used in nuclear weaponry, uranium can also fuel nuclear-powered submarines & ships, alloyed with other metals to create penetrative ammunition, and more.
- 🧬 Science & Medicine. Uranium is used as a target for x-ray machines, used to date the age of the earth, and can stain cells to increase the contrast in images.
The Case Against Uranium
The uranium market has been subdued for about a decade, characterised by low prices and uneventful spikes, and this may likely continue to be the case in the short-term. Global economic uncertainty & lockdown measures as a result of the pandemic has meant that a lot of industries, businesses, offices, etc. have closed, which resulted in a decline in energy demand. Furthermore, another nuclear accident could certainly change public opinion on uranium and could sway policy makers into searching for alternatives. Last but not least, should uranium substitutes (such as thorium) make strides in research & development, & prove to be a better & economically viable alternative, then they may potentially take away some of uranium’s market share.
The Case For Uranium
As the world’s population continues to increase, and as emerging economies grow & urbanise, more and more energy will be required to meet these demands. Through stricter regulations & rules regarding the operation of nuclear power plants, and for the benefits that nuclear energy brings, there is greater acceptance of nuclear energy as an alternative energy source. Additionally, with the issue of climate change & CO2 emissions becoming more and more of a priority for governments around the world, nuclear energy provides a “greener” alternative than burning fossil fuels. After learning from past accidents such as Chernobyl & Fukushima, today’s nuclear power plants abide by stricter rules & regulations, making another accident unlikely.
Popular Ways To Invest In Uranium — Pros/Cons of Each
As you might imagine, you can’t invest in physical uranium. Here are some of the ways in which you can get into the uranium market. If you’re still confused about how any of these work, refer back to our basics newsletter for a refresher.
- Uranium ETFs. There are ETFs that invests in a number of uranium companies, whether they’re in mining & distribution, or generating nuclear power. Because of this, you won’t have full exposure to uranium prices, since other factors (like company performance & stock market swings) need to be taken into account. Regardless, they’re traded on stock exchanges, so they’re very easy to buy and sell. Depending on which broker you go with, you may be charged with trading commissions. ETFs also charge an expense ratio, or management fee that gets taken out of their total holdings and is then reflected on your account. Should you choose an ETF route, be aware of the fine print — the risks and costs.
- Uranium Stocks. There are a number of publicly traded companies that are involved in the mining, processing, and/or sale of uranium. Because you’re investing in company shares, you aren’t directly following uranium prices since there are other factors at play. Unlike the ETFs that invests in a number of companies, you’ll have to do your own due diligence and select the companies yourself, albeit without having to pay for the expense ratios or management fees. As always, you may want to consider looking at the company’s annual reports (especially operational costs), competitors, portfolio of what products/services they have, the region they operate in, and potential exploration expansion plans.
- Uranium Futures Contracts. A binding agreement traded on futures exchanges between two parties where they agree to buy/sell uranium at a specified time in the future with an agreed-upon price. A standard contract deals with 250 pounds of U3O8, the most commonly found form or uranium in nature/ These futures contracts are financially settled after the contracts have expired, meaning there’s no physical delivery. Because you are using a significant amount of borrowed money, even small price changes in U3O8 can either lead to massive profit, or massive losses beyond what you paid for, potentially leaving you in massive debt. They are certainly high-risk and not recommended for beginners. Further, fees associated with futures trading include broker commissions, and exchange/clearing fees.
TL;DR — Is It The Right Investment For You?
As always, it depends on what your aims are. The uranium market has long been subdued this past decade, and any investment strategy involving uranium will likely be for the long-term. As an energy commodity, demand for electricity will always be there & is expected to increase due to an increasing global population, urbanisation in emerging economies, & infrastructure & construction projects. This means more electricity will be required to meet this demand. Nuclear energy provides a “greener” alternative to burning fossil fuels, which may be a talking point for countries looking to take a more proactive approach on the issue of climate change. Furthermore, though there haven’t been any recent incidents, a nuclear accident involving a reactor, however unlikely, will set the uranium market back, and may push policymakers to search for alternatives, like thorium. Last but not least, during times of global uncertainty, electricity demand may fall, which, in turn, could lower demand for uranium.
🧺 If you are considering adding uranium to your existing portfolio or bundling it with a number of others, you may want to consider doing dollar-cost averaging (regular investments over time) to build your uranium position so you can take advantage of any volatility in the market.
💰 If you are considering adding uranium for speculation and profit, you may want to consider having a long-term strategy, which would involve monitoring production &/or supply cuts from major producers, new nuclear plant construction plans, the energy demands from emerging economies such as China & India, and policy decisions made by governments. The World Nuclear Association releases continually updated information on world uranium mining production, as well as information on the world’s nuclear power reactors & uranium requirements every two months, more frequently if required, so you can keep up-to-date on a country’s appetite for nuclear energy. In addition to monitoring the factors mentioned above, you may also want to consider performing some technical analysis on uranium’s price chart to help consolidate trends and patterns to help with your decision. That being said, again, the uranium markets may require a long-term outlook for one’s investment to truly provide a decent return.
As always, if you are unsure, check in with a professional financial advisor before making any moves.