URANIUM: ON THE RISE OR A HUGE RISK?

The price of uranium has been recently heading toward record levels, pushed by the renewed interest in nuclear power to tackle the energy crisis triggered by the Ukraine-Russia conflict. But a number of issues with its supply and safety could hamper this growth.

So, let’s look at what uranium is and why you could be interested in its resurgent market. Remember, on Stryk, you can trade CFDs on two Uranium producers, UUUU and UEC.

What’s uranium and what is it used for?

Uranium is a heavy metal. Nothing to do with ’80s music, though: it just means that it has a really heavy chemical composition, so much so that it was once used as a counterweight in boat’s keels. In the past it was also used for coating ceramics, but then scientists found out that its natural radioactivity made it perfect as a fuel for nuclear reactors (and atomic bombs too, although plutonium is a more common choice in that sector). Without getting too technical: after a special treatment, this newly enriched uranium is basically burnt, splitting its atoms to create heat, that in turn is used to make steam to produce electricity.

Why is it so expensive?

Uranium can be naturally found in soil, rocks or water, but it’s quite rare. And that can make it very expensive, when demand is high. Therefore, its price spiked in the 1970s, when the first oil crisis prompted huge investments in nuclear energy. After the Chernobyl disaster, though, nuclear reactors fell out of favour, along with the request for uranium. Another price hike started in the early 2000s, pushed by the promotion of nuclear energy by the Chinese government. Only for the price to drop again a few years later, hit by the double whammy of the 2008 global financial crisis (which reduced the request for energy) and the nuclear opt-out decided by many countries, following the 2011 incident in the Japanese nuclear power plant of Fukushima.

What has all that to do with the war in Ukraine?

For the uranium market, everything started changing again in 2021, when the environmental crisis led the European Union to controversially classify nuclear energy as a green source, hoping this would support its policy of shifting away from fossil fuels. That led to a 30% surge in the price of uranium, but it was still nothing compared to what would happen shortly after, following the Russian invasion of Ukraine. An immediate surge in uranium prices came as the first attack shocked the commodities market and never really faltered in the months that followed.

The real test for its market could come next winter, as the tensions between Europe and Russia have notoriously created a dramatic energy crisis. So, uranium and nuclear energy are once again starting to be seen as a key player for averting a power and heating shortage in the coming winter.

New opportunities and old risks

So, is uranium some kind of a safe bet? Well, let’s say, uranium’s future could indeed look bright. There is an increase in demand coming from Asia, who have been scaling up its nuclear capacity at a much higher rate, compared to its European counterparts. However, there are at least three issues that could harm this growth:

• The first one is that the main provider of enriched uranium is actually Russia itself. Despite accounting for only about 5% of raw uranium’s global distribution, Russian transformation plants account for almost half of its worldwide enrichment capacity, a procedure that is essential for turning it into nuclear fuel. Currently, enriched uranium is not among the Russian products sanctioned by the International community. But if that should change, there could be a sharp global shortage. 
• The second issue is that countries like Germany, that have recently announced their plans to bring back the atom, despite having previously decided to turn nuclear-free, could finally not go through with it. In fact, many are still advising against it, in light of known safety risks and unresolved issues with the storage of radioactive waste.
• This leads to the third factor haunting the CEOs of companies involved in the uranium market: the risk that an atomic incident in Ukraine could switch once again public perception against nuclear energy. However remote, such a possibility is unfortunately far from impossible: Ukraine houses 15 nuclear power plants, several of which are situated in the active war zone, including the largest in Europe: the very same Zaporizhzhia Nuclear Power Station that in the last few weeks has been repeatedly hit by bombings.

What now?

Despite all doubts, uranium has jumped around 7% since the middle of August, breaching the psychological barrier of $50 a pound. And many analysts expect uranium to rise further, even hitting $70 a pound in the coming months, according to Bank of America. However, things could also go the other way. 

On the Stryk app you can trade CFDs on two uranium producers: UUUU and UEC. When initially added to Stryk in March this year, UUUU share’s price rose from $9 to a peak of $11 during mid April. Since then, it’s been trading in a range between $5 and $8. UEC shared a similar pattern, peaking at $6.5 in mid April and then trading between $3 and $4.5. Always remember though, past performance isn’t always an indicator of future performance.

Finally, don’t forget that you can also try them out with a Demo Stryk account to see if CFD trading feels right for you.