Barry FitzGerald: Opportunity for Australian producers as Trump mulls uranium imports
Barry FitzGerald writes his legendary Garimpeiro resources column weekly for Stockhead.
So which way is Donald Trump going to jump on US uranium imports?
It is the big question facing investors in ASX-listed uranium stocks, so they better have their Twitter account up to date.
President Trump is now a couple of days in to his 90-day consideration of a Department of Commerce probe into US uranium imports.
The probe was triggered by a petition filed by two US uranium companies claiming state-subsidised production by foreign suppliers had caused the US industry to contract.
The Department of Commerce’s recommendations were not released but if they go down the path of protecting the US uranium industry from foreign competition on national security/national interest grounds, the suggested remedies will be tariffs or quotas.
Macquarie’s commodities desk had a look at the issue during the week, arguing that if President Trump does impose uranium trade barriers, it would contribute to a surplus in the uranium market by encouraging higher US production, weighing on the price outlook.
But others argue that the so-called Section 232 investigation could in fact be a positive for uranium prices.
That argument goes that the US uranium industry – or what is left of it — is incapable of rising to the challenge of increasing production to offset quotas on imports.
And more than that, global nuclear power utilities that have been holding back writing new long term contracts until the outcome of the Section 232 probe is known will re-enter the market.
Macquarie said the US is the world’s biggest uranium buyer at 30 per cent of the market, with imports accounting for 93pc of its consumption.
“Domestic production has been declining for years as slumping prices made most mines uncompetitive. There is now only one active uranium operation in the US – White Mesa,’’ Macquarie said.
Stockhead readers know that there were great hopes for the uranium price to continue its rise from the lows of 2017.
But while the current price of $US25.75/lb is ahead of last year’s average of $US24.59/lb, it is off the 2018 highs and still massively short of the $US65/lb the industry says is needed to “incentivise’’ new production to meet long-term demand.
Having said that, the prices quoted above are for the spot market. It only represents a small part of the total uranium market. The industry is more interested in the long-term contract market where prices are much higher, as reflected in Ranger uranium producer Energy Resources of Australia (ERA) reporting its average realised sales price in 2018 was well above spot prices at $US47.67/lb.
The bunch of hardy ASX-listed explorers that have stuck to uranium (along with producers like BHP and ERA) hope that once President Trump clears the air, the nuclear power utilities will re-enter the market looking to sign higher priced long-term contracts.
Macquarie said that if President Trump goes down the 25pc import quota route, the US would need to increase its own production from 1.1m/lbs last year to 12m/lbs a year – a level not achieved since the Cold War.
“Import tariffs may be a more feasible option versus a quota,’’ Macquarie said. “The US President may be highly selective on trade bans. About 33pc of imports come from Russia, Kazakhstan and Uzbekistan, whose main uranium producers have state-links or are state controlled.’’
It said about 55 per cent of US imports come from long-standing trade/political allies, Canada and Australia, notably Cameco and BHP. They are private companies so should be spared from US trade action.
Time will tell on that score. What is more certain is that the Section 232 probe stood as a barrier to power utilities writing new long-term contracts.
So come President Trump’s decision, the barrier will be removed. Whether that will be a good thing for the uranium price remains to be seen.
However, it could well be, potentially firing up interest in the ASX-listed uranium players.