How to trade the best uranium stocks: is it time to invest?
Uranium often escapes the radar of investors and traders, but the commodity is becoming a hot topic of discussion around the world. We look at the market and explain how to trade.
Uranium is not the most popular commodity. Mentioning the radioactive material tends to conjure up images of the devastation it has brought upon the world: whether that be the nuclear bombs that decimated Japan in 1945, or the fallout caused by nuclear meltdowns in Chernobyl or Fukushima. But many believe uranium – now mostly used to power nuclear power stations that generate over 10% of the world’s electricity – is regaining its reputation as a long-term source of power capable of meeting the surge in demand for electricity over the next decade, driven by uptake of everything from electric cars to smart home devices. We have a look at the uranium market, where it is headed and the top uranium stocks to consider.
What you need to know about the uranium market
The world needed nearly twice as much electricity in 2011 than it did in 1990 and governments around the world had considered nuclear energy as one of the most reliable ways to meet growing demand. The amount of electricity generated using nuclear power rose 25% over those 11 years.
What was the impact of Fukushima on the uranium market?
But enthusiasm for nuclear power quickly turned into fear after the Fukushima power plant in Japan was hit by a tsunami in 2011, causing a meltdown. Unsurprisingly, the country’s attitude toward nuclear power soured, other plants were shut down as a precaution and plans to build more were dashed. Japan was generating 30% of its electricity from nuclear power before the incident and intended to increase that to 40% by 2017, but today that figure is less than 2%. Other countries followed suit. Germany’s nuclear plants were generating one quarter of its electricity in 2011 but that has more than halved since.
Australia, despite being one of the largest producers of uranium in the world, still has an absolute ban on nuclear power to this day. Fukushima ultimately made other countries more cautious toward nuclear energy and this change in attitude took huge demand out of the market. Uranium prices dropped from above $70 per pound before the meltdown to lows of $20 in late 2016. Uranium is priced in two ways: under a long-term contract and on the spot market, with the former usually demanding a premium to the latter. When prices are on the rise, as they were before Fukushima, most energy suppliers will purchase the uranium they need under long-term contracts to lock in predictable prices. This is why the pressure on prices took so long to feed through after the meltdown. However, as prices fell, more of them were willing to take their chances on the spot market, which further exacerbated the pressure.
Kazakhstan becomes the world’s uranium superpower
Although the effect of Fukushima is widely attributed to the downturn in uranium prices, which have struggled to find much ground above $30 per pound since the start of 2017, the rise of Kazakhstan also injected substantial amounts of new supply at a time when demand had waned, keeping prices low. That meant the efforts made by others in the industry to cut supply to support prices were futile. ￼
Kazakhstan went from producing around 10% of the world’s uranium in 2007 to one third in 2010, and in 2017 it accounted for a whopping 39%. State-owned Kazatomprom is the world’s largest single producer, responsible for 20% of global output. In fact, state-owned miners from around the world are thought to account for half of uranium production. Kazatomprom is involved in every single uranium mining project in the country, wholly-owning some and working as the local operator with foreign companies under joint ventures on others. ￼
This toxic combination of lower demand and higher levels of supply eventually took its toll, and many gradually saw their operations become unprofitable. Hundreds of companies succumbed to the environment and, today, only a handful of miners are responsible for most of the world’s output – 85% of all the uranium produced in 2017 came from just 10 companies, and over half comes from just 10 mines.
What countries produce the most uranium?
|Uranium production in 2017 (tonnes)||% of world total|
(Source: World Nuclear Association)
What countries have the largest uranium resources?
|Recoverable and inferred uranium resources (tonnes)||% of world total|
(Source: World Nuclear Association, 2017)
Is nuclear power making a comeback as a reliable power source?
Nuclear power is still suffering from an image problem and many remained steadfast against building more, but some countries are once again hoping nuclear power can solve their energy needs. Even Japan, despite having the most gruesome relationship with nuclear power, has revived its commitment. The mineral-starved country, which must import virtually all of its energy, began restarting old plants in 2015, with some still waiting approval to come back online. Japan’s ambition is to generate 20% of its power from nuclear energy by 2030. The International Energy Agency says nuclear power capacity is increasing, particularly in Asia. China has been the single biggest adopter of nuclear power over the last 20 years. It generates just over 4% of its electricity from nuclear plants, but that is up from 1.9% in 2007 and it is clear China is embracing it. There are over 250 new reactors in China’s pipeline, which is over four times more than any other country, and it has folded nuclear power into its energy development strategy that openly states it wants to expand capacity. India has also been keen to meet the power needs of its burgeoning population using nuclear energy, although it has been at a slower pace than China because the country is not a member of the Nuclear Non-Proliferation Treaty, which makes purchasing uranium more difficult. Uranium can only be sold to countries that have signed up to the treaty, which requires nations to have their nuclear activities monitored by independent inspectors. Still, together, China and India are constructing more than twice as much new nuclear power (in terms of power generation capacity) than the rest of the world combined. ￼
Many countries rely on nuclear power, but only a handful plan to build more plants
|% of electricity generated from nuclear power (2018)||Number of active reactors (as of July 2019)||Number of reactors under construction, planned or proposed (as of July 2019)|
(Source: World Nuclear Association)
The outlook for uranium prices
The outlook for uranium prices is bullish. Many countries rely on nuclear power for substantial amounts of their electricity and the long term nature of plants means they will keep running for the foreseeable future, even if many of them are reluctant to build any more. Demand is set to increase from major economies including China, India, South Korea and Russia. And fresh cuts from the biggest producers has dramatically reduced supply. Kazatomprom’s output in 2018 was 20% lower than 2017 as it tried to support prices and has said it will maintain that level until at least 2020. Cameco, the second largest uranium producer accounting for 15% of world production, suspended its McArthur River mine in Canada at the start of 2018 because uranium prices ‘remain at unsustainably low levels’, taking the world’s second-largest uranium mine out of action. Cameco had said it had managed to largely shield itself from the price weakness when it announced the decision in late 2017 because it was mostly selling under long-term contracts that had locked in better prices, but said those were starting to expire.
Could uranium double in price before the end of 2019?
S&P Global said in February that it had ‘conservative’ expectations for a long-term contract prices to climb to $60 per pound and spot prices closer to $50 in 2019 – both levels that have not been seen for years. Alongside growth in Asia and the major supply cuts, S&P said its expectations were also fuelled by the fact that ‘many economical uranium mines are approaching the end of their lives’. Considering a new uranium mine can take anything from six to 20 years to complete, it is obvious why many believe there will be a deficit of supply over the coming years.
In its 2018 annual report, Cameco said it expected to achieve an average realised price of just over $46 in 2019 and admitted it was taking a cautious view. This is because most of the mines that have been shut to reduce supply can easily be brought back online, causing fears that a flood of supply will re-enter the market as soon as prices climb high enough to make operations profitable. For this reason, the company has said ‘even the promise of new supply could create a headwind and put downward pressure on uranium prices.’ That caution has proven justified after Cameco lowered its 2019 price expectations after the first quarter (Q1), from $39.50 to $41.50. There seems to be a consensus that uranium prices are heading higher in the near-term, but there is a lack of agreement over the direction of prices over the longer term because of how easily new supply could enter the market.
President Trump rejects proposal to prioritise US uranium
There has also been a major development in the US which will have a large impact on the market. A proposal was put forward by two US uranium producers 18 months ago asking US President Donald Trump to sign off on ‘Section 232’, which would have required a 25% quota to be slapped on uranium imported into the US. The US currently imports around 93% of its uranium.
This would have provided a boost to US uranium producers because their product would be more competitive against uranium produced and imported from abroad. But Trump has now rejected the proposal and the idea that uranium imports were a threat to US national security. He has, however, ordered a 90-day review to look at the ‘significant concerns regarding the impact of uranium imports on the national security with respect to domestic mining’. The president said a ‘fuller analysis of national security considerations with respect to the entire nuclear fuel supply chain is necessary at this time'. A 90-day review has been launched to look at a wider choice of possible remedies to help the domestic market, which could prove a catalyst for uranium prices in the near future.
Energy Fuels, one of the US producers to file the proposal alongside Ur-Energy, issued a statement after the announcement that said the ‘entire front end of the US nuclear fuel cycle is under siege’ and that the ‘industrial base to support US nuclear fuel production is rapidly disappearing’.
It is good news for foreign producers, especially those that operate in countries like Australia where huge amounts of uranium is produced but no nuclear power is used. Paladin Energy said the decision was ‘a positive for non-US uranium producers’ and that ‘18 months of uncertainty has been removed which is expected to lead to a normalisation of the uranium market'.
‘Since the petition was lodged early last year, we have seen a reluctance by both US utilities and non-US utilities to enter into long-term off-take agreements with producers and instead they have drawn down their inventories, which has contributed to suppressed uranium prices,’ said Paladin chief executive, Scott Sullivan.
Canadian producers also welcomed the news, as it is the biggest supplier of uranium to the US. Cameco, which makes about 25% of its revenue from US customers, said its supply of uranium south of the border ‘has never been a threat to US national security’.
‘The uncertainty resulting from this investigation has hung over the uranium industry for much of the past year, compounding an already challenging global market. While some uncertainty will remain until the efforts of the working group are complete, the president’s decision is overall a positive outcome,’ Cameco said.
How to invest in uranium
Unlike most commodities, like gold or oil, investors cannot purchase physical uranium due to its radioactive nature. Therefore, investors must look at alternative options, such as stocks that mine uranium, or exchange traded funds (ETFs) that derive value from investing in uranium stocks or the buying the physical commodity.
- You can follow four steps to begin investing in uranium: Research the uranium market using this article and other sources
- Decide how you'd like to invest in uranium – through stocks or ETFs, for example.
- Practise trading in a risk-free environment using an IG Demo Account, or open an account with IG to get started
- Open your first uranium position
Best uranium stocks to watch
There is a wide variety of uranium stocks to choose from. Cameco is by far the largest publicly-listed stock, but companies like Paladin, Energy Resources of Australia and Denison Mines all have producing operations and most of them have idle capacity ready to launch when uranium prices climb higher. Or you can evaluate companies like Berkeley Energia that are not yet producing but developing major new uranium projects with the hope of coming online just as prices start to rise.
Top US uranium stocks
Top international uranium stocks
|Cameco||Canada||Canada and Kazakhstan|
|Paladin Energy||Australia||Namibia and Malawi|
|Energy Resources of Australia||Australia||Australia|
|Aura Energy||Australia||Sweden and Mauritania|
UK uranium stocks: multi-product miners
Two other stocks to consider are Rio Tinto and BHP Group. They are among the biggest miners in the world and produce a wide-array of commodities in addition to uranium. This means they are more diversified and better positioned to weather downturn in individual markets, but it also means that you will be gaining broader exposure to the mining industry rather than just uranium. Still, they are both among the top ten producers of uranium in the world, according to the World Nuclear Association.
Uranium ETFs and other ways to invest
It is also worth considering stocks that invest in uranium companies and projects, or uranium-focused ETFs.
Yellow Cake offers ‘direct exposure to the spot uranium price without exploration, development, mining or processing risk’. The main underlying asset of the firm is the uranium it buys on the spot market, mostly from Kazatomprom, meaning its share price is largely dictated by movements in the spot market. Uranium Participation is similar as it also derives its value from buying uranium in the market.
Global X Uranium is an ETF that tracks a range of companies involved in uranium mining and the production of nuclear components, giving exposure to the wider supply chain. Geiger Counter is more focused by investing in those either producing or exploring for uranium.
Is it time to invest in uranium?
After eight years of depressed prices and tough decisions, things are starting to look up for the uranium market – but there are still plenty of headwinds to consider.
The effect of the deep but necessary production cuts made in recent years is starting to support prices. But the amount of idle capacity ready to return to the market could quickly halt any rise in prices if miners restart operations too soon.
The reputation of nuclear energy has improved following Fukushima, with Japan having restarted plants. Nuclear power generates around 10% of the world’s electricity and countries like China and India are aggressively building more nuclear plants, although the latter is still in a grey area because it isn’t a member of the Nuclear Non-Proliferation Treaty. Plus, the fact remains that most countries aren’t planning to build more nuclear plants and those that are heavily reliant, like France, are cutting down.
But nuclear power is regarded as a reliable and clean energy source that can bridge the gap to renewables. Almost two thirds of the world’s power is generated by fossil fuels and demand for electricity is set to double by 2050, so big decisions need to be made about how to meet increased demand while lowering emissions. Nuclear power is a way of adding substantial clean capacity over the long term and is a good option to have as a backup for renewable energy, such as when the wind isn’t blowing or the sun isn’t shining. But, on the other hand, companies like Royal Dutch Shell are also aggressively pushing natural gas by describing it as the perfect transition fuel to bridge the gap to renewables – and economically it is far cheaper to build a gas plant. Some argue the developments in energy storage means there won’t be a need for a backup to renewable energy in the not-so-distant future. Plus, at a time when trade wars are becoming commonplace, there is good reason for countries to be cautious about becoming reliant on other people’s commodities, especially when no one owns the wind or the sun.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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