Spread Betting Uranium?

More often associated with international political problems than spreadbetting, uranium as a scarce and in-demand commodity is beginning to become increasingly popular. Despite the more sinister side to its uses, the demands for clean and cheap energy are driving the nuclear energy industry and with it the price of its most required resource. The added spice of the geopolitical tussle over who should be allowed to hold large stockpiles of this metal give it an edge as the forbidden fruit and, perhaps, adds to its mystique for traders. Essentially the only demand for this commodity is for its potential nuclear energy after a lengthy process of enrichment and its supply, in comparison to gold for example, is unlikely to become a high-street one.

Uranium has two major suppliers in Australia and Canada who together produce nearly half of the worlds supply. In the past these nations have been accused of forming a cartel on global supply, much like OPEC, and have the market power to adjust supply to the price that they demand. This is very much worth bearing in mind when considering trading uranium as it is not a free market in the purest sense. It is also worth noting that the global uranium market operates on two different levels. First there are the western states of North America, Europe and Australia who operate as a separate market to the independent states of China, Russia and Eastern Europe. The independent states occasionally interact with the western markets, selling their own stockpiles, and therefore price can be fairly volatile with the increased competition from these states.

So, how do you go about trading or spreadbetting on the price of uranium? Bearing in mind that there are perhaps only 100-150 active participants of the raw material in the Western  market where buyers are regulated by governments it is difficult to actually purchase the commodity itself. It is possible to trade the uranium futures market on the New York Mercantile Exchange although this is not perhaps the easiest routes for trader to gain exposure to the long-term increase in value that it may be set for. One of the downsides of taking on a direct futures contract in the value of the resource itself is the volatility associated with a fairly illiquid commodity. A good example of this is the recent announcement that China was going to slow the opening of its multiple new nuclear power plants which sent the value tumbling periodically and would have certainly triggered a few stop-losses on the way.

The best way to trade uranium is through listed companies who are exposed to uranium price rises and who will hopefully benefit as the demand for the metal increases. Uranium is traded at four key stages during the process of its extraction to energy source and the most obvious and easily accessible are the companies who mine it. Despite the arguments that the nations who contain the mines often act as a cartel, this can benefit investors when the demand really does hit high levels and prices soar to increase the companies profits and share price. One such company is Cameco (CCJ) are a US-listed mining company who produce 15% of the world uranium mining; second only to Rio  Tinto. These are available to spread bet on IG and provide a less risky way into the uranium boom. Alternatively several smaller companies including Mawson Resources in Sweden may offer cheaper exposure. Other possibilities include Spanish miner Berkeley Resources (BKY:AIM).

Beyond the Chernobyl disaster, nuclear energy has been growing strongly over the past twenty years although the recent 2010’s Japanese nuclear disaster has driven prices down as countries re-evaluate their nuclear options. The uranium price has from from $136 per pound in June 2007 to just $34 per pound in September 2013. France still relies on almost 80% of its electricity being provided by nuclear energy as do several other European countries and China and India are looking to expand into nuclear energy over the next 15 years. Another way for investors and traders to get involved in this is to invest in funds which have a specific focus on uranium mining. These include Geiger Counter Ltd. (GCL) which is an investment trust listed on the London Stock Exchange and currently trades around 50p per share. Regardless of the recent problems experienced with the Fukishima plant in Japan, nuclear energy is clearly going to be a major source of energy in the coming years. Although there are plenty of uranium deposits in the world investment in uranium miners has slackened in recent years and the price could spike up if there is a shortage with countries scrambling to secure future supplies. Choosing the right companies to gain exposure to this will take a fair bit of research but the future rewards for this exposure could be worth it.