Congress would likely have an easier time supporting restrictions on uranium imports – given their use as nuclear power plant fuel.
The United States Department of Commerce has launched an investigation to determine if uranium imports threaten national security, raising questions about whether Canadian producers will be exempted from any potential trade restrictions.
The investigation, which opens a new front in U.S. President Donald Trump’s “America First” trade campaign, “will canvass the entire uranium sector from the mining industry through enrichment, defense, and industrial consumption,” the commerce department said.
“Our production of uranium necessary for military and electric power has dropped from 49 per cent of our consumption to five per cent,” said commerce secretary Wilbur Ross. U.S. uranium production fell to 2.4 million pounds in 2017, down 61 per cent over the last decade, according to the U.S. Energy Information Administration.
U.S. uranium producers Energy Fuels Inc. and Ur-Energy Inc. filed a petition in January requesting an investigation under section 232 of the 1962 Trade Expansion Act – the same provision used to justify tariffs of 25 per cent on steel and 10 per cent on aluminum imports from countries including Canada, Mexico and Europe.
The U.S. firms have requested that 25 per cent of the U.S. uranium market — roughly 12 million pounds — be protected for American miners, saying they have struggled to compete with state-owned “subsidized” firms in countries including Russia and Kazakhstan.
Though it’s unclear how U.S. mines could ramp up sufficient production in the near term to accommodate that gap, analysts don’t anticipate any special exemption for Canadian suppliers. U.S. reactors burn roughly 50 million pounds of uranium each year, with Canada and Kazakhstan each supplying roughly 25 per cent of that amount.
“We had previously considered that Canadian material would be exempt from any Section 232 tariffs and that any action would be mainly targeted at Kazakh and Russian material,” RBC economist Andrew Wong wrote in a note to investors.
“However, given that Canadian steel and aluminum were not exempt from Section 232 and trade tensions between U.S./Canada have risen, we are not entirely confident that Canadian material would be exempt or considered as ‘domestic’ material.”
Though U.S. producers have complained about subsidized competition, their production costs tend to be high, making it harder to cope with prices that have plunged from more than US$70 a pound to less than $20 per pound after the 2011 Fukushima Daiichi nuclear disaster, said Colin Healey, a mining industry analyst with Haywood Securities Inc.
The disaster prompted Japan to shut down all of its 50 nuclear reactors, putting a sizeable dent in global demand. Though Japan has since brought just nine reactors back online, uranium suppliers nevertheless ramped up production in anticipation of a stronger revival – leading to an oversupply problem that further depressed prices, Healey said.
Prices have since bumped up to about $23 a pound following production cuts at leading producers KazAtomProm in Kazakhstan and Cameco Corp. in Canada. Canadian suppliers would likely take the same approach, cutting back on production, if tariffs or quotas are imposed, Healey said.
Canada must be exempted from a U.S. investigation, and excluded from any potential tariffs or quotas, said Ken Neumann, Canadian Director of United Steelworkers, which represents workers in the uranium mining and processing sectors in Western Canada and Ontario.
“Targeting Canada’s uranium industry would be absurd and would suggest a deliberate escalation by the Trump administration – for its own political purposes – of a trade war with America’s closest ally,” he said in a statement.
U.S. uranium producers gained on Wednesday, with Energy Fuels Inc. surging as much as 14 per cent and Uranium Energy Corp. climbing 9.1 per cent, while Canadian producer Cameco Corp. fell 1.5 per cent, underscoring the divergence in sentiment. Cameco is set to report its second-quarter earnings on July 26.
Congress would likely have an easier time supporting restrictions on uranium imports – given their use as nuclear power plant fuel — than it did backing measures on steel and aluminum, said Benjamin Tal, deputy chief economist at CIBC World Markets.
“When it was aluminum you could question whether it can be justified as a national security risk, but with uranium, I think it’s much easier,” said Tal. “The bigger significance of this to me is what it signifies: that everything is now fair game. If you are the CEO of any company in any industry you don’t know when they’ll find something, some twist to introduce 232 to your industry.”
Source:Financial Post
