Rattlesnakes, Whiskey and Uranium
There’s been a lot in the major news related to uranium recently, most notably last week when a man in Oklahoma was pulled over by police in a stolen car filled with a rattlesnake, an open bottle of whiskey, and a canister of uranium (he possessed all three legally). This likely expedited the Trump administration’s ruling on the Section 232 petition brought by two U.S. based uranium companies.
Trump Uranium Ruling
This week the Trump administration issued a long-awaited ruling on a petition launched to limit uranium imports under the same Section 232 of the Trade Expansion Act of 1962 for “National Security” purposes as aluminum and steel in 2017. Two U.S. based companies issues the petition claiming that uranium supplies were a national security issue because of U.S. energy production, and nuclear power plant owners objected, saying that such a ruling would increase prices on power plants already struggling to survive with increases in renewables and natural gas.
President Trump surprised many analysts and observers, ruling that quotas and tariffs would not be imposed, disagreeing with his commerce secretary’s recommendation. He did, however, order a working group to develop recommendations within 90 days for reviving U.S. uranium production. With most market participants expecting the president to rule for protection, this ruling took many traders by surprise and will likely shake up markets.
So where did this ruling start and why is uranium in the spotlight?
Uranium is a relatively common metal dispersed in small amounts throughout the earth’s crust. The most significant deposits exist in the western United States, Australia, Canada, Central Asia, Africa, and South America. Though the US has a history of significant domestic mining, it currently imports 93% of the uranium it uses.
Uranium has broad applications including medical devices, armor plating, and weapons, but the significant majority of uranium mined is used in nuclear reactors, taking advantage of its radioactivity to generate electricity. Thirty-one countries around the world use nuclear power, and it accounts for about 20% of the United States’ electricity today.
Nearly all naturally occurring Uranium exists in the relatively stable Isotope Uranium-238. In order to be used in a fission reaction, this uranium must be enriched to include the more radioactive isotope Uranium-235.
In order to be used in a nuclear reactor, raw uranium must go through a four-stage process known as the front end of the nuclear fuel cycle.
First, Uranium ore is milled and refined into uranium concentrate (U3O8), also known as yellowcake uranium. To enrich the uranium and make it fissionable, the Yellowcake is then converted into Uranium Hexafluoride (UH6), a gaseous form of uranium, which is fed into centrifuges and spun at a high speed. Centrifugal force leads the heavier U-238 ions to the outside, while lighter U-235 Ions are concentrated in the center. The final step is to convert enriched uranium into uranium oxide powder, which is then manufactured into fuel rods for reactors.
Nuclear power plants are powered by “low enriched uranium”, which is uranium enriched to less than 20% U-235. Most reactors today use uranium enriched between 3% and 5%. Uranium enriched above 20% U-235 is known as “high enriched uranium”, as 20% is the minimum enrichment level required for a weak nuclear weapon. “Weapons grade” uranium is generally defined as uranium enriched above 90%.
Markets and Pricing
Since 1990, consumption has consistently outpaced mined production. This gap (15 per cent in 2010) has been filled by various sources of secondary supply, primarily the unwinding of uranium stockpiles built up during the cold war.
This excess supply, combined with political headwinds faced by nuclear energy, especially after the meltdown at the Fukishima Daiichi plant in 2011, has caused prices on the spot market to fall near historic lows.
Historically, the Uranium market has been dominated by national governments, who have purchased it for electricity, and for research and national security purposes. For these buyers, security of supply was far more important than price. This led to uranium being traded primarily through long term contracts, with a real spot market taking a long time to develop. For uranium materials delivered in 2017, roughly 86% were purchased through long-term contracts (at an average price of $31.50/lb U3O8) and about 14% through spot market purchases (at a current price of $24.60/lb U3O8).
The spot market is growing, however, as more speculators have entered the market and as low prices have caused major producers to cut production (ex. Cameco shuttering Canada’s McArthur River mine) and choose to fulfill long term contracts with spot market purchases (at a current $6.90 average spread).
The yellowcake uranium spot price is reported by two primary agencies, TradeTech, and UxC, which both report prices weekly. The CME Group and NYMEX launched a U3O8 futures contract in 2007 which is based on UxC’s index. While the contract is still listed on NYMEX and priced against the UxC index, there is little volume and open interest.
Long term contract prices are reported yearly by the major producers and importers, including the US EIA, Eurotom, and Geoscience Australia. There are a handful of price reporting agencies that price the spot market and adhere to IOSCO standards, but we’ve heard traders complain about the pricing due to relatively small total spot market where one huge bid or offer hitting the order book can massively skew benchmarking.
Trump Admin Decision
The decision by the Trump administration was definitely a shock, as uranium is arguably a larger national security concern than aluminum and steel, which were both granted tariffs under the same Section 232 of the Trade Expansion Act of 1962.
Last Week, Spencer Abraham, Secretary of Energy under George W Bush, wrote an Op Ed (paywall) in the Washington Post stating that “Today, Iran’s enrichment capacity exceeds our own. Meanwhile, the United States’ dependence on imported uranium is creating a growing national security threat.”
The uncertainty behind this decision was the biggest problem in the process, and there are likely some global players that will lose because of their positioning. But, thus is the ever-present geopolitical risk.
Iran Uranium Limits
Under the JCPOA, the Iran nuclear deal signed by the P5+1 group and Iran in July 2015, Iran agreed to limit its uranium enrichment to below 3.68% U-235, and limit its stockpile to 300 Kilograms of 3.67% enriched uranium in exchange for relief from western sanctions. That relief has not come, however, as European countries have struggled to maintain trade lines which circumvent American sanctions implemented by the Trump administration after it unilaterally withdrew from the agreement in May 2018.
In response to this lack of economic relief, Iran had threatened on May 4 to enrich its stockpile beyond the 3.67% limit, unless Europeans could find a way to circumvent American sanctions within 60 days. Europeans have had no such success, however, and Iranian state-media reported on Sunday that Iran had exceeded the enrichment limit. It has postponed further action for another 60 days, again imploring European leaders to come up with a way to trade with Iran.
There should be a new rule about if you search for any topic + blockchain, you will find a result. Of course, there’s a special report about preventing nuclear proliferation using blockchain.
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-Editor in Chief, Josh Yanus