June 13, 2016 / 6:47 PM / in a year

Cuba sees nickel output steady at 56,000 tonnes; low prices bite

MOA, Cuba, June 13 (Reuters) - Cuba is trying to reduce costs in the nickel industry to offset losses from low global prices, rather than raising output from 56,000 tonnes annually, industry executives said on a rare tour of one of the communist-led island’s plants.

The head of state monopoly Cubaniquel and plant managers said that despite the slump they were looking to foreign investment to increase capacity in the future.

Nickel is one of the top foreign exchange earners for Cuba’s beleaguered economy, and the country averaged production of around 74,000 tonnes in the decade after 2000. But nickel export earnings have been hit by plant obsolescence and a sharp fall in prices for the metal over the last four years.

Cubaniquel originally expected revenue of $600 million to $700 million from nickel this year, projecting prices at around $14,000 per tonne, director Eder Oliveros Garcell said. Instead, prices have hovered around $8,600 per tonne, meaning sales will be substantially lower.

“We expected revenue of this order, but the reality today is different,” Oliveros Garcell said, during a visit late last week to the Pedro Soto Alba plant in the eastern Cuban city of Moa, a joint venture between Cubaniquel and Canadian mining company Sherritt International Corp.

PRICE RISE SEEN

Oliveros Garcell said he expected prices for nickel, used in the production of stainless steel and other corrosion-resistant alloys, to rise again next year. Cuba is one of the world’s largest producers and exports to China, Europe and Canada.

Output at the Pedro Soto Alba plant will continue to run at full capacity, producing 37,500 tonnes per year. If it continues to run at the same pace, it has enough reserves to last another 18 to 20 years, the plant’s production manager Ricardo Quintana Santana said.

But Cuba’s only other processing facility, the state-owned Che Guevara plant, also in the northeastern district of Moa, was operating well below its capacity of 30,000 tonnes per year, said Cubaniquel’s Oliveros Garcell. Output would likely be 18,500 tonnes this year, rising to 19,000 tonnes in 2017, he said.

Low prices are exacerbating the impact of low output on financial results.

“The topic of prices this year is having a significant impact in the plant’s results and we have to improve on costs to get better results,” he added.

The industry was seeking to reduce energy and metallurgical costs, Santana said. Yet it wanted to raise salaries in line with recent reforms under President Raul Castro designed to update Cuba’s Soviet-style command economy.

The average Cuban state monthly wage is around $25, not enough to live on despite free housing, food rations and free healthcare and education.

“The salary we had last year has multiplied by around four,” said Santana, adding that wages were now around 3,000 Cuban pesos monthly, equivalent to $125. Motivation had risen as a result, he said.

Despite the slump in prices, Cuba was looking for a partner for other projects in the nickel industry, Oliveros Garcell said, and had interest from companies in China, Brazil and South Africa.

Exploration in and around Moa has shown reserves could support 120 years of mining at the country’s current rate of production

Both Oliveros Garcell and Santana said they hoped U.S. sanctions on Cuba would be lifted so the nickel industry could export there and import spare parts from its nearby northern neighbor rather than from Europe. (Editing by Cynthia Osterman)

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