trump-infrastructure

Last week, a request from the Uranium Producers of America (‘UPA’) grabbed the headlines, as the organization was asking the US Department of Energy (DOE) to suspend the sale of (physical) uranium on the spot market. The UPA correctly described the status of the US based Uranium producers as ‘fragile’, and it’s pretty clear the DOE has been a huge ‘help’ in destroying America’s domestic uranium market.

UPA says ‘ the uranium market is oversupplied in the short term, and the DOE material continues to overwhelm the market with large quantities of price insensitive supply’, and this statement is absolutely correct. The DOE has been selling yellowcake no matter what price it was receiving for it, but by doing so, the collateral damage in the sector was (and is) huge.

Whether the DOE receives $25 per pound of uranium or $35 won’t make or break the government’s budget, but would make a huge difference for the domestic producers. Just to give you an example, in the second half of 2016, the DOE has dumped 3.4 million pounds of uranium on the open market, whilst the total uncommitted utility demand for the same period was just 0.3 million pounds. Indeed, the DOE is dumping 11 times more uranium on the market than strictly necessary to fill a demand.

The idea of selling ‘excess’ uranium has historically grown and was re-confirmed in 2015 by the Secretary of Energy under the Obama regime. According to Energy Secretary Moniz, it wouldn’t harm the market I if the USA would dump in excess of 5 million pounds of uranium on the open market in 2016, but in hindsight, this has definitely aggravated the existing issues and as you can see on the next image, most uranium producers haven’t been able to generate a profit in the past six years.

URA 1

Source: energy.gov

Whilst there’s absolutely no urgent need to sell the stockpiled uranium, the government might actually be better off by waiting another 5 years. The tipping point of the US uranium production (and demand) is expected to be reached in the early 2020’s, when a high level of uncommitted demand will go on the market to discuss offtake agreements with producers. A low uranium price won’t help anyone (and might destroy jobs as several companies are now doing the bare minimum in order to survive for a few more years), whilst there’s additional upside for the DOE as well. Any business man with the ability to think reasonable will agree that selling uranium at $40 in five years from now is a superior plan compared to selling at $25 per pound right now. And if it helps to save jobs and companies, then that’s an additional bonus.

However, fortunately for the uranium producers, the new president seems to understand that the first step to make sure the USA has a buoyant mining and commodity sector is to make sure that any government intervention does not harm the free market. And in this case, the government intervention (dumping uranium on the market definitely counts as an intervention) has had a huge negative impact on the average spot price, as you can see in the next image:

URA 2

Source: energy.gov

In the executive order, dated March 28, President Trump seems to be willing to push the domestic mining industry forward. And for the uranium market, even simple measures like not dumping excess supply on the market would already have a huge impact without incurring a negative financial impact on the government finances level.

Most people (correctly) interpreted that executive order to be a first step to resuscitate the US coal sector, but one part of the EO could also be seen as important for the uranium sector:

“President Trump’s Executive Order directs all agencies to conduct a review of existing actions that harm domestic energy production and suspend, revise, or rescind actions that are not mandated by law.

Within 180 days, agencies must finalize their plans.“

Could this mean the DOE will revise its policy to dump uranium on the open markets before the end of this year? We think that’s very likely, and this should give the entire US uranium sector more oxygen and keep all projects in good standing until the (long-term) uranium prices pick up again.

 

And this could be the first step to a new US-focused and US-centered resources program.