U.S. Probe Boosts Uranium Stocks, But the Street Is Conflicted

(Bloomberg) -- The Trump administration’s investigation into uranium imports are propelling U.S.-based uranium mining stocks, but analysts are not so sure if it will ultimately help the sector.

If the investigation leads to implementation of tariffs or quotas, it could be “huge win” for struggling U.S. domestic production, Scotiabank analyst Orest Wowkodaw writes in a note. However, he points out that “artificially propping up uneconomic and high cost U.S. volume would only serve to further depress the still-weak uranium market as foreign low cost volume would still need to find a home.”

U.S. Probe Boosts Uranium Stocks, But the Street Is Conflicted

U.S. uranium producers gained on Wednesday, with Energy Fuels Inc. surging as much as 14 percent and Uranium Energy Corp. climbing 9.1 percent, while Canadian producer Cameco Corp. fell as much as 1.5 percent, showing the divergence of sentiment. Cameco is set to report its second-quarter earnings on July 26.

The investigation is likely to be neutral for the uranium spot price as “the global uranium trade balance is unlikely to shift in a major way, and the spot price is therefore unlikely to move much,” a Berenberg research team wrote. The U.S. accounts for 29 percent of worldwide demand for uranium, but domestic miners supply only 1.8 percent of the global supply. This creates a huge gap for these miners to fill and who will be looking at a premium price point in order to sustain their business, the team added.

Royal Bank of Canada’s analyst Andrew Wong agreed with Berenberg and said that it’s unlikely that U.S. producers can boost production quickly in the near-term to accommodate the 12 million pounds that was proposed in the petition. The investigation will have a dampening effect on uranium market activity as U.S. utilities will likely be reluctant to sign contracts until there is further clarity on the investigation, Wong added.

“The economics of protecting the domestic uranium mining industry in the U.S., to the detriment of the utilities feels illogical,” Berenberg wrote.

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