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Low prices force once-bright nickel industry into a slump.

Cuba's earnings from nickel exports are dwindling this year--the result of lower market prices for the metal worldwide and production problems at home.

After peaking in the first half of 2011, nickel prices have fallen, and the market outlook is cautious.

On May 22, Antonio Carricarte, vice-minister of external trade, disclosed on national TV that Cuba exported $810 million worth of nickel in 2011 (or 30% of total exports).

That made nickel twice as valuable as the next-largest export, medicines and biotech products ($405 million), and far bigger than sugar ($240 million), tobacco ($135 million) and rum ($54 million).

All of these, however, were dwarfed by income earned from tourism and professional services such as doctors working in Venezuela and elsewhere ($6.3 billion).

There are no indications that the nickel industry--considered a strategic sector of the economy--has recovered from its perennial problems.

In recent years, nickel has been something of a savior.

While the rest of Cuba's economy had been reduced to shambles, the nickel sector managed to rise from its own chaos in the early 1990s.

After reaching an all-time record of 76,529 tons in 2001, the nickel sector stabilized at just above 74,000 tons per year. But in 2008, the government stopped releasing information on production and export income--suggesting that yields had begun to drop.

Using the latest available figures from Cuba's National Bureau of Statistics (ONE in Spanish), CubaNews estimates the island's 2010 nickel production at between 55,500 and 59,200 tons.

That's only 80% of average annual output in the previous 10 years, and 77% of the 2001 all-time record (see CubaNews, October 2011, page 14, for a detailed account of these estimates).

However, one key player in Cuba's nickel sector is reporting a quite different story.

Toronto-based Sherritt International Corp., which operates a joint-venture nickel mine at the Pedro Soto Alba plant in Moa, says production over the past decade has gone from 28,070 tons in 2000 to 33,972 tons in 2010 and 34,572 tons last year.

That means the slump can only be explained by declining output at the Cuban government's two state-owned nickel operations: Ernesto Guevara at Moa, and Rene Ramos at Nicaro. Production at the Soto Alba plant represented 4046% of national output up to 2007, though Sherritt says its facility's production grew by 23% from 2000 to 2011, with a brief slump in 2006. Assuming total Cuban output of 59,200 tons in 2010, this means the joint venture led by Sherritt now accounts for 57.4% of Cuba's nickel production.

For the first quarter of 2012, the Canadian company reported production of 4,676 tons of mixed sulfides (on a 50% basis), down from 4,844 tons during the same period in 2011--but still on track to exceed 34,000 tons/year, the annual average over the past five years.

Production tends to slow down during the rainy and hurricane season, which extends from May to November.

Europe's continuing economic crisis--and its resulting unemployment rates, currency chaos, production slowdowns and political unrest--is hurting world nickel prices. From $29,050/ton on Feb. 23,2011, nickel has tumbled to $16,775/ton as of May 21--a 42.3% drop over the last 15 months. Over the past three months, prices have fallen by 2.8% a week.

Analysts are cautious--though not yet bearish--on price projections as a rapid solution to the eurozone crisis seems elusive, and the long-awaited U.S. economic recovery procrastinates.

The World Bank foresees average nickel prices at $17,037/ton during 2012, down from $22,910/ton last year but not as low as the $16,051/ton projected for next year--reflecting expectations that global supply will exceed demand in coming years.

Unlike other commodities such as copper, aluminum, oil and gold, prices for nickel have remained softer in the aftermath of the 2008 chaos.

"Nickel prices have declined more than one-third because of slowing demand by the stainless-steel sector and expectations of large new nickel production capacity additions in 2012 and bevond," savs the January 2012 issue of the World Bank's Global Economic Prospects.

New deposits in Brazil, Madagascar, New Caledonia and Papua New Guinea, increased production in traditional sources and strong scrap metal usage are to blame for a nearly saturated market--while on the demand side, growth in the steel alloy industry (the main consumer of nickel) seems to be slowing due to continuing financial turmoil.

Even though nickel has replaced sugar as Cuba's top export earner over the last decade, it suffers the same market swings, with shortlived, plentiful bonanza periods and prolonged periods of depressed prices.

Agustin Lage, older brother of disgraced former vice-president Carlos Lage, recently told official TV program Mesa Redonda that Cuba must transition from an economy based on large-scale commodity production to one based on knowledge and aggregated value.

The latest developments in the nickel sector just might prove the elder Lage right 3





(1) Villa Las Brujas (24)

(2) Gaviota Cayo Ensenachos (506)

(3) MeliaBuenavista (105)

(4) Sol Cayo Santa Maria (297)

(5) Mclia Cayo Santa Maria (350)

(6) Melia Las Dunas (925)

(7) Gaviota Cayo Santa Maria (451)

(8) Barcelo Cayo Santa Maria (1,308)

(9) Memories Paraiso (666)

(10) Memories Azul (720)

Year    Output Metric  Millions of  Sheriffs output share
            tons         dollars           Percent

2000         71,361.4        573.4                   39.3

2001         76,529.0        437.8                   38.2

2002         75,211.2        197.3                   42.1

2003         70,948.4        617.0                   45.2

2004         75,912.6      1,062.3                   44.2

2005         75,641.3        990.4                   43.6

2000         71,707.5      1,343.5                   41.6

2007         72,968.4      2,716.6                   46.1

2000 *       70,400.0      1,486.2                   49.9

2000 *       70,100.0        870.0                   47.9

2010 *       59,200.0      1,250.0                   57.4

Sources: O.N.E., Cepal, Reuters, CubaNews calculations * Estimated
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Author:Portela, Armando H.
Geographic Code:5CUBA
Date:Jun 1, 2012
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