Morrison

THE LATE Eric Williams reminded us that Christopher Columbus' maiden voyage to the Caribbean, where he landed first in The Bahamas on October 12, 1492, was the first gold rush in the history of the modern world (From Columbus to Castro: The History of the Caribbean 1492-1969). Indeed, the agreement Columbus signed with the Spanish sovereigns before his departure made clear that the search for gold was among the primary missions for the voyage. And his preoccupation with finding gold comes through in one of the first entries in his journal on October 13, the day after he landed, where he wrote: "I was attentive, and took trouble to ascertain if there was gold."

But Columbus' hopes that there was an abundance of gold in Hispaniola and Cuba did not materialise, certainly not compared with Mexico and Peru, which were not conquered until 1519 and 1526 respectively. By the 1620s, Spain's Caribbean colonies were no longer producers of special metals, and had, in fact, turned to sugar and slaves as the new commodities around which the process of extracting wealth revolved. Then came the British under which Jamaica, 'the garden of the Indies', emerged as the pre-eminent plantation of the empire with King Sugar as the driver.

To this day, except for The Bahamas, commodities remain leading pillars of the larger Caribbean economies - Cuba, the Dominican Republic, Jamaica and Trinidad and Tobago. Sugar though, has, for the last 40 years, slid from its primary position, even in Cuba, a world-scale producer, as the region failed to keep up with new production systems driven by continuous technological changes, rising economies of scale, and aggressive cost compression.

relying on imports

Ironically, the price of raw sugar has escalated to its highest level in nearly 30 years, and now trades at 21.55 US cents per lb. This is at a time when Jamaica is struggling to meet its export quotas, which bring premium prices, and must rely on imports to satisfy local demands.

In Jamaica, bauxite replaced sugar more than 40 years ago as the leader of the island's commodity production, and was the major foreign-exchange earner up until the early 1980s. Its contribution to investment activity, merchandise exports and direct and indirect taxes was pivotal to local economic fortunes. Thus, it was not surprising that when it suffered severe setbacks at the time of the global downturn of the aluminium industry in the mid-1980s Jamaica went into a recession. By the late 1980s, bauxite production was on the rebound and the industry resumed its role as a main plank of the economy, generating investment, foreign exchange and government revenues.

But the industry has once again been brought to its knees, being Jamaica's first and main casualty of the collapse in commodity markets brought about by the global financial meltdown and subsequent economic recession. That collapse has hurt companies and countries that produce aluminium and a wide range of other metals, including copper, lead, nickel, and silver. These metals and other commodities, like grains were caught up in the commodity bubble that sent prices soaring to record levels in early 2008. Gold, Columbus' raison d'etre for his voyage to the Caribbean, and a precious metal with which, regrettably, Jamaica was not blessed, did not, however, experience extreme price volatility.

Just as the United States (US) economy and Germany and France, the Euro-zone's two leading economies, appear to be emerging from recession, commodity markets are also showing signs that the worst may have passed, although the general weakness in consumption and excess inventories persist.

roller-coaster ride

In the case of aluminium, cash prices on the London Metal Exchange, which had slumped by 57 per cent from over US$3,000 per tonne in July last year to as low as US$1,330 in February of this year, recovered to just over US$2,000 last week an increase of nearly 50 per cent. Copper prices have also been on a roller coaster. They had peaked in April 2008 at over US$8,600 per tonne, before reaching rock bottom in December at under US$3,100 per tonne. They have now climbed by over 60 per cent to more than US$5,200 per tonne.

Aluminium and copper are important to several Latin American and Caribbean producers, including Brazil, Chile, Guyana, Jamaica, Venezuela and Suriname, and, therefore, the recovery of prices will improve the prospects for companies to reduce losses and return to financial viability. Firms operating in Jamaica's bauxite industry that had been hit by the market collapse and forced to close alumina plants will no doubt welcome the upturn in prices as they seek to repair their financial situation.

UC Rusal, the major owner in Jamaica, which was badly hit by the financial crisis and market collapse, appears to be making some progress in this regard. Further progress and reopening of plants will, however, be dependent, among other things, on a pick-up in consumption of aluminium products, which itself will be driven by the level of overall economic activity, but more specifically, by demand in the transportation and construction sectors that are the leading consumers.

Nickel prices, which had fallen even more dramatically from over US$31,200 per tonne in March 2008 to just under US$9,700 per tonne in December 2008, have shot back up to around US$16,000 per tonne. This is important news for Cuba, which has been a producer for years and has significant reserves, as well as for Columbia, the Dominican Republic and Venezuela which were also part of Columbus' search for gold.

Dennis E. Morrison is an economist. Feedback may be sent to columns@gleanerjm.com.