Institute of Pacific Relations

Rubber Continues under ControlAuthor(s): Alvin BarberSource: Far Eastern Survey, Vol. 8, No. 20 (Oct. 11, 1939), pp. 236-238Published by: Institute of Pacific RelationsStable URL: http://www.jstor.org/stable/3022328 .

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236 Rubber Continues Under Control October 11

Increasingly Important as Source of Rubber," May 24, 1939; "Australian Government Breaks Boycott on Pig Iron for Japan," May 10, 1939; "The United States and Southeast Asia's Strategic Products" and "Britain Acts on Shipping Committee Report," Apr. 12, 1939; "Empire Versus Far East in Australia's Economy," Mar. 29, 1939; "British Malaya as a Leading Source for Japanese Iron" and "New Guinea Mandate and Adjacent Territory to be Consolidated," Mar. 15, 1939; "French Considering Indus? trialization of Indo-China," Feb. 15, 1939; "New Shipping Links Between U. S., South Seas and Australia," Jan. 19, 1939; "Oil Search in Papua and New Guinea Enters New Phase," Jan. 5, 1939; "Repercussions of the Australian Embargo on Iron Ore Exports," Dec. 21, 1938; "France

Becomes Indo-China's Best Customer," Nov. 23, 1938; "The Play of Petroleum Forces in the Far East," Sept. 7, 1938; "Outposts of Empire in the Southern Pacific," Feb. 16, 1938; "Britain's Economic Stake in Southeast Asia," Dec. 22, 1937;,"Malaya's 'Uncontrolled Boom'," Dec. 1, 1937; "British Malaya Turns Toward More Varied Economy," Sept. 29, 1937; "British Borneo Gains as World Prices Rise," Sept. 15, 1937; "Cam Ranh Base Would Fit Into Strategic Network," Aug. 18, 1937; "Agricultural Development Promoted in New Guinea," Aug. 4, 1937; "Petroleum Cos. Press Drive for New Guinea Oil," May 12, 1937; "The Far East at the World Sugar Conference," Apr. 28, 1937; "Indo-China?France's Great Stake in the Far East," Jan. 20, 1937.

RUBBER CONTINUES UNDER CONTROL

The sharp spurt in rubber prices following the out? break of the war in Europe illustrated the automatic

response of traders and consumers to a situation which underlined the importance of adequate rubber supplies to industrial nations whether at peace or war. Second

thoughts soon prevailed, however, the markets eased, and prices were maintained at or above the approxi- mate 20 cent level only through the combined influence of the present diminished world stocks plus the decision of the International Rubber Regulation Committee to continue strict control of rubber exports rather than to withdraw all restrictions for the duration of the war.

When so much of the world runs on wheels and when there has been an almost uninterrupted development of the uses of rubber in manufacturing and as an engineer? ing material for many years, it is impossible to quarrel with the classification of rubber as one of the key strategic materials. Modern warfare could not be fought without rubber. Radio would be an impossibility. In the airplane alone, quite aside from the matter of tires, rubber is used extensively as a shock-absorbing mate? rial. All fuel and oil lines use rubber hose joints. Igni- tion wire is rubber-covered. Rubber gromets are em?

ployed where moving parts pass through metal walls, rubber bushings where engines are bolted to their

mounts, rubber shock-pads where the engine mount is bolted to the main superstructure of the plane. In

many parts of the engine there are rubber washers, cushions and tubing. Control column wheels are now made of rubber, as are panel knobs and door knobs.

Highly specialized rubber is used in the manufacture of de-icing equipment. The same story could be re-

peated for motor cars and trucks. Rubber is utilized in

many types of artillery, for arms and ammunition, for

balloons, for gas masks. Industrial assembly lines which do not carry their quota of rubber are progres- sively growing fewer. When the long list of rubber

products in regular use is also considered, it is clear that a belligerent without rubber would be fatally handicapped on both the home and fighting fronts. Yet there are scant indications of any sizable boom in rubber in the near future, although the greatest nations of Europe have gone to war, and the reaction of the

markets after the initial shock of war had worn off confirms the judgment of observers. For this there are several reasons.

Although world rubber stocks are currently at the lowest point in recent rubber history and the United States had no more than about three and one half months supply of crude on hand as of September 1st, this is the result of administrative production control

through the IRRC rather than any real production shortage. At a conservative estimate, the annual world

production capacity for natural rubber is now about

50% above the annual world demand, and production could be steadily increased over a period of years if demand increased either as a result of the war or for other reasons.

War needs of the belligerent powers will amount to a substantial if undetermined figure, but the amount of rubber going to meet Europe's normal requirements is certain to be slashed. Through British and French con? trol of the seas, shipments to Germany have been en?

tirely cut off, or virtually so. German net imports of rubber since 1937 have been a bit under 100,000 long tons annually, or about 8 to 9% of world consumption, and this amount now becomes available to other

buyers. In the last war, shipments of rubber to Euro?

pean neutrals were rationed and quite likely may be so

again, especially if there are any indications that rubber supplies are reaching Germany from neutral sources. About 51% of the world's crude rubber is pro? duced under the British flag in Malaya, Ceylon, India, Burma and North Borneo; another 6% in French Indo-China; about 38% in Netherlands India, which is a hostage of Singapore, while the Netherlands itself in time of war receives shipments from the outside world only at the discretion of the British fleet. About 95% of all rubber production is accounted for in these Asiatic countries. Of the remainder, the greater part comes from Siam, which is not in a position to antag- onize the British and French, while other production, a scattering 2-3%, mostly wild rubber, is in Africa, the Philippines and Central and South America. Thus, irrespective of their command of the seas, the United Kingdom and France are in a position to control vir-

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1939 Rubber Continues Under Control 237

tually all rubber shipments at their source. (See "The United States and Southeast Asia's Strategic Products," Far Eastern Survey, Apr. 12, 1939.)

War needs of these two allied powers are still an unknown quantity. In his book, "The Strategy of Raw

Materials," published in 1934, Brooks Emeny made a

rough estimate that the United States would require perhaps 100,000 long tons of rubber annually for emer?

gency war uses. This figure, if applied to the United

Kingdom and France, would more than double their recent consumption, and if accepted as a maximum would mean that the two countries taken together would require an additional 200,000 tons of rubber

annually. But as far as world consumption is concerned, approximately 100,000 tons are already available as the result of Germany's enforced withdrawal from world rubber markets. In addition, there is small likeli- hood that normal domestic absorption of rubber in the United Kingdom and France will remain unaffected by the war. The rationing of gasoline is already in effect in the United Kingdom, and this will necessarily result in a very substantial saving in the use of rubber for tires. With the strictest economy, the mobilization of

scrap rubber supplies and the increased use of reclaim, it is possible that the consumption of crude rubber for

non-military uses might be cut for a time by 50%. In recent years, France and the United Kingdom together have taken between 150,000 and 175,000 long tons of crude rubber. With economy, this total might be re? duced to 75,000 - 85,000 tons. Adding 200,000 tons for

special war needs, we obtain a figure between 275,000 and 285,000 tons, or approximately 100,000-125,000 tons above apparent annual consumption in the two countries. This is little more than the amount available from former German supplies. As a matter of fact, considering the possibility that neutral nations will be

rationed, it is probable that total crude shipments to

Europe will decline. The amount is uncertain (it has been placed as high as 100,000 tons) but at any rate it is clear that no important increase in rubber absorp? tion can be expected in Europe.

Another factor limiting the possibility of a boom in crude rubber with attendant high prices is the poten? tial increase in reclaimed rubber consumption. Warring nations may be expected to exploit this resource fully. In the United States the percentage of reclaim absorp? tion to crude absorption since 1934 has ranged from 22% to 31%, but in the past it has been above 50%. In 1938, American manufacturers, absorption of re? claim was 121,000 long tons, but annual capacity of the reclaim industry was estimated at 262,000 tons, a fig? ure which could of course be raised, given several years time, should the need become apparent. The possibili? ties for expansion in the reclaim industry act as a brake on crude prices. British rubber authorities have sug? gested that when the price of crude rises to 9 pence per

pound, a substantial increase in the use of reclaim could be expected. In 1936-37, when crude prices momen-

tarily rose very sharply, absorption of reclaim in the United States increased to 162,000 long tons for 1937, as compared with 117,500 in 1935. For the first seven months of 1939, United States absorption of reclaim was proportionately well above the similar period in 1938 and at the end of July amounted to about 31% of crude absorption.

Although the IRRC has resisted pressure for a large immediate increase in permissible exports from agree? ment countries, fixing the quota at 60% of the basic

quota for the third quarter and 70% for the fourth

quarter of 1939, every indication points to increasing production and no difficulty is expected on the produc? tion side. The major problem for consuming countries is transportation, and to a lesser extent, freight and insurance rates. British, Japanese and Dutch vessels have carried a large part of the rubber shipped to the United States, but this country is in a far stronger position than in 1914 should foreign vessels be with- drawn as a result of the war. The tonnage of the United States merchant marine (sea-going vessels) is now above 9,000,000 gross tons, compared with about

3,000,000 in 1914. There are more than 300 American

flag ships of over 2,000 gross tons on regular routes in the overseas trade, compared with less than 100 in 1914. In addition, probably 100 to 150 vessels of com?

parable size could be diverted from the intercoastal to the overseas trade, while the United States Maritime

Commission, in the first two years of its building pro? gram, has launched or now has on the ways 125 new vessels. American flag vessels carry at present about one third of the foreign commerce of the United States, but their total carrying capacity is much larger. It is estimated that they might carry twice the present amount, or in an emergency, with careful planning, might come close to carrying all American foreign commerce. In regard to the present situation and rub? ber specifically, the Maritime Commission has prom- ised to make available all vessels necessary to insure the country's crude rubber supplies.

In Europe, the enormous resources of the British and French merchant marines, their control of the seas and virtual control of all rubber production, insure the delivery of essential rubber supplies to their indus? tries. It is also probable that neutral countries will be

permitted to obtain enough rubber for their essential

needs, although some difficulties may be experienced since most of the neutral countries of Europe are ac- customed to draw on British stocks. Germany, how?

ever, must rely largely on its synthetic industry, which has been developed very rapidly in recent years (see Far Eastern Survey, Mar. 15, 1939, p. 70). Although Germany by regulation of rubber consumption, collec- tion of domestic scrap and increased imports of crude

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238 European War Spotlights Japan's Shipping Problem October 11

rubber and scrap has endeavored to accumulate reserve rubber stocks, their extent is uncertain and surely in?

adequate for a long war. Moreover, without new sup? plies of crude, the quantity and quality of reclaimed rubber cannot be maintained. During the last years of the 1914-18 war, there was scarcely enough high-grade scrap available in Germany to supply vital military requirements.

In this situation, the heavy German investments for the development of buna and other synthetics will pay large dividends. Since 1937 the subsidization of the

synthetic rubber industry has cost the German public in the form of import duties on crude rubber alone the

huge sum of RM272 million, or over $50 million annu?

ally. German output of synthetic rubber, including perduren, was estimated to be at the rate of about

24,000 tons annually earlier in the year. The present production figure is unknown, but is probably not more than 50% of long-term essential needs. The question is whether present supplies and reserves will last until the necessary synthetic production has been attained.

If Italy were to enter the war as an ally of Germany, her situation in regard to rubber would be precarious. Cut off from crude imports by British and French

blockade, the country's synthetic rubber industry, which is still in its infancy, could produce only about 700 tons annually, whereas annual crude imports now

average about 25,000 tons. Whatever raw materials Germany may expect to

obtain from the Soviet Union, rubber is certainly not on the list. Imports in the latter country declined from

47,300 long tons in 1934 to 26,000 in 1938, and in the current year were estimated at about 2,000 tons

monthly up to September, when relatively large pur-

chases were made at Singapore. The Soviet Union relies

chiefly on its fairly large synthetic industry, with pres? ent output uncertainly estimated at about two thirds of consumption, or perhaps as high as 75,000 tons

annually. The quality of the Russian synthetic is also uncertain and is considered by German rubber men to

be inferior to their own. Japan, another possible bellig- erent, has meager stocks of rubber and a synthetic industry which, although highly publicized, produced only 100 tons in 1938.

For the present the only noticeable increase in rub? ber consumption promises to come from the United States and to be held well within the normal limits

expected with improving business conditions. The

analogy with 1914-18, when this country found itself with a great new trade in rubber as England, France and Germany were unable to continue the manufacture of rubber goods for international shipment, cannot hold today when half the countries of the world have rubber manufacturing industries. Only modest gains for American manufacturers from countries usually supplied in part by the belligerents can be expected.

On the other hand the development of synthetic rub? ber industries under war pressure holds a definite threat for countries producing natural rubber. In

Germany the primary costs of rubber synthetics are said to have been lowered 40% in the last two years, with the expectation prevailing that eventually the

synthetic product would become fully competitive with natural rubber. Should Germany, Russia, Italy and

Japan become self-sufficient in rubber as a result of

synthetic manufacture at reasonable costs, 25% of the world market or more would be lost to crude producers.

Alvin Barber

EUROPEAN WAR SPOTLIGHTS JAPAN'S SHIPPING PROBLEM

The outbreak of war in Europe and its repercussions in the Far East have intensified the seriousness of

Japan's shipping problem. Shortage of bottoms and the

inadequacy of existing regulation had already led to demands for stricter measures of control over the ship? ping industry. The possibility of disruption of interna? tional shipping as a result of the war, together with

reported plans for another big military push in China, have made the need for coordination and control even more acute.

As pointed out earlier in these pages (Dec. 7, 1938, p. 286), the demands of the war in China have resulted in a severe strain on Japan's merchant marine. Large quantities of shipping were requisitioned by the gov? ernment to transport and supply the armies in China, which resulted in the withdrawal of Japanese ships from world trade routes. These demands reached their

peak in the fall of 1938, when they probably amounted to around a third of Japan's entire merchant marine.

After the fall of Hankow and Canton the government began releasing ships, and continued to do so through August 1939. Meanwhile the great expansion of trade between Japan and other parts of the yen bloc, as well as the increased demand for coastal shipping, produced a severe shortage in the so-called nearsea areas, which was not balanced by a corresponding increase in the size of the merchant marine, although there has been some expansion. As a result nearly a million tons of

foreign shipping had to be chartered. This meant a drain of foreign exchange, however, and last spring it was reported that no further chartering or importa- tion of foreign ships would be permitted, and existing charters would not be renewed on expiration.

Because of the shortage of bottoms, freight and char- ter rates in the nearsea areas rose rapidly after the outbreak of the war, and the influx of tramp ships attracted from less profitable deepsea routes, though large, was not sufficient to mitigate the situation. Both

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