Finance—Public & Private

The Rubber Collapse

By no means for the first time in Stock Exchange history the public is discovering the danger which lurks in boom prices. In 1925 the price of rubber was soaring, and the price for the commodity was at nearly 5s. per lb., and was even talked higher. Those with the greatest knowledge of the industry deprecated at the time the high price of the commodity, which was due both to a semi-cornering of supplies and to exceptional trade demands largely front the United States.

But while the experts knew the price was too high and a warning to that effect was given to the public, the investor was, nevertheless, led to believe that anything like a slump to the previoUs rubbish level of prices was rendered almost impossible by the operation of what was known as the Stevenson Restriction Scheme. It was largely due to those assurances that the public was induced to put up some millions of capital in new rubber plantation enterprises, the promotions of which, of course, in their turn were stimulated by the high price of rubber. It was no uncommon thing in those days for a prospectus to be regarded as Of a very conservative character when, disregarding the extravagantly high prices then quoted for rubber, profits were based on estimates of selling rubber at 2s. or even Is. 6d. per lb, To-day the price stands at under 4d. per lb.! It is obvious. therefore, that rubber production has ceased to be a profitable industry for ordinary companies, though for the moment the situation is, no doubt, relieved by some companies having effected forward sales of rubber at higher prices.

STEVENSON SCHEME ABANDONED.

The first heavy blow was given to the industry some two years ago when with startling suddenness it was announced that the Stevenson Restriction Scheme had been abandoned. For some time, however, before that decision was taken it became evident that the scheme, which involved the restriction of exports of rubber from the Straits to a certain total per quarter, was becoming unworkable by reason of excess production and especially the cheap production resulting from the cultivation of rubber by native planters. In the mean- time, however, well over 1100,000,000 had been placed in the industry by British' investors, and with the extra- ordinary tenacity which characterizes the British specu- lative investor, it is probable that most holders, even when shares began to fall, held on to them in hopes of an ultimate recovery.

HOPES REVIVED.

A few weeks ago a better tendency was apparent in rubber shares due to the statement tl.a:; the Goverhor of the Straits Settlements, Sir Cecil Clementi, was con- ferring with the Dutch authorities on the question of whether some new scheme for restriction of output conceived on a very different basis from the Stevenson Restriction plan might not be put into operation. The Conference, however, was evidentlY a brief one, and Monday's papers contained a definite. statement that such a scheme was regarded as impracticable- and, on the whole, undesirable.. The letter from the Straits Government to the representatives of the Malayan rubber industry stated that intervention by the Dutch authorities is not to be expected at present, . and after pointing out that the industry has not yet had a normal period, the letter adds, " what is now needed is that prices be stabilized by the action of economic laws. The Governor, advised by the Executive Council, considers that unilateral action in the Malay Peninsula would be worse than useless and has, therefore, decided that economic laws be allowed to take their course in the hope that by those means stabilization of prices will be realized and the industry then enter upon a normal period in which supply and demand approximately balance each other."

FALL. IN SHARE VALUES.

However wise this decision may conceivably be, its effect upon the price of rubber and rubber shares has, of course,

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been instantaneous, and the price of rubber has fallen dur- ing the week to 81id., while the shares have slumped in sympathy. Some idea of the loss suffered by rubber shareholders may be gathered from quoting a few examples of declines from the highest. Anglo-hutch shares, for example, which are now under 20s., were up to 86s. 8d. in 1925, and yet another company, the Ayer Kuning, which are now quoted at about 20s., were at-one time as high as £4 10s. Kuala Lumpur shares were at one time in 1925 as high as £7 6s. ; they are now just over 20s.

THE PROBABLE FUSIONS.

There is little doubt that in many cases the latest developments in the situation will lead to a rationalizing of the industry, and, thrcugh a process of amalgamation, it may be hoped that a number of companies willweather the present storm and will ultimately fulfil to some extent the hopes of shareholders. In the case of some of the weaker companies, however, it- is to he 'feared that only an early trade revival—of which at preSent there are few reliable signs—:ean prevent a closing down. In some quarters the view is taken that it will be poSsible at very small expense to nurse plantations at present unprofitable until better times return, but - in other quarters the view is-held that the process would be an expensive one.

It is too early at present to fairly gauge the position resulting from this latest development, but, speaking quite generally, it would probably not be very wide of the mark to say that in the case of those companies which were holding on by their teeth and trusting to some fresh scheme with an early rise in the price of rubber to pull them round, the outlook is a pretty hopeless one. On the other hand, really large companies with good resources will, of course,' not only hold on, but shareholders will see the day when better things prevail, for neither trade depression nor- abnormally low prices for rubber and other commodities will continue for ever.

ARTHUR W. KIDDY.