impact of crisis: uranium could spike to $120

The Impact of the “War Cycle” on Markets: High Tension Metals
Posted on March 24, 2014 by Chris Ecclestone

The Cold War supposedly ended in 1989 but it would appear that somewhere or other there has been a major regional war going on since that time. Just when it appeared that Iraq and Afghanistan were behind us, along came Syria and rising tensions over the Crimea.

Of course any war is “good” for gold, both in demand and prices. The people in the war zone want the metal as a store of value if they need to flee while the broader global economy players tend to harbour gold because it’s hard to think of any war that does not produce inflation or money supply expansion of some sort for the armaments ramp-up is always an extra expense with the printing press being the easiest way to fund the war and keep a restless populace at bay.

On other commodities though, while the Iraqi war disrupted oil supplies, it did not appreciably effect metals. The Afghan economy has principally been known for supplying opiates, so metal markets were not drawn into the conflict. Likewise the Syrian conflict is only effecting oil supplies marginally as the country is such a bit-player in OPEC. However the latest escalation in tensions between Russia and the West is the first time in a very long age that a meaningful event might occur involving one of the world’s major diversified metals producers being taken out of the equation or at least isolated from the mainstream of metals trading. The last time we can think of was back in the old Cold War days when the West tried to isolate the Soviet Union over its invasion of Afghanistan in the early 1980s. That however was a dramatically different kettle of fish then because the supply of Russian metals was very marginal to the West and thus shutting it off had minimal effect.

In this piece we shall look at the metals most vulnerable to disruption from sabre-rattling in either direction. Then we shall also look at some long term consequences of the “New World Order”.

Throwing Stones in a Glasshouse

Some have accused the EU and US of soft-pedaling on the Crimea/Ukraine issue. Well might these economic powers think twice before stirring up too much of a ruckus. The EU is particularly vulnerable to Russia cutting off natural gas exports and the US has to play nice with Russia to keep getting cheap uranium supplies.

Uranium:

According to the US Energy Administration, in 2011 the United States mined 9% of the uranium consumed by its nuclear power plants. The remainder was imported, principally from Russia (50%), Canada, and Australia. As uranium bulls will ceaselessly inform you the supply situation is tight and if it wasn’t for those pesky Russians the price would be a lot higher. We usually do not make common cause with the tin-foil-hatted but would beg to agree with the uranium bulls. It is a truism that the unwinding of the Soviet stockpiles have beggared the global uranium mining industry and that the great day will be when an end to this attrition is seen. The current events might bring this around sooner rather than later. Just as the recent House of Cards series highlighted the somewhat mystical (and downright incorrect) applications of Samarium in nuclear energy, it is really with the far better known, and far less prosaic, uranium that the Russians have the US dancing on some rather short marionette strings. Basically if Russia decides to sit on its stockpiles, slow down supplies, cite inventory errors or whatever, then we would have a Cold War in a hot metal. Frankly, with Putin being a far better Machiavellian than any of his adversaries, it does not require us to tell him that this is the obvious play. The stockpile selling game was coming to a close anyway and it would be a good moment for him to bring it to a foreshortened end. There is no swing producer and there is no appreciable stockpile (beyond what the uranium ETF, Uranium Participation Corp has stashed away). The price could spike to over $120 per lb in the spot market easily if Russia let its intentions to place this card be known.

Dependence

The USGS survey in 2011 shows the US dependence upon outside sources of supply for various metals. Do our eyes deceive is or does the table omit Uranium? Hmmm.. wonder why?

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