Finance Public and Private
Rubber
ALTHOUGH Rubber shares,_ together perhaps with Rothe Railway stocks, might still be described as the Cinderella of the Stock Markets, there have not been wanting signs of recovery during the past ten days from the conditions of extreme depression-which characterized the market immediately following–the announcement by the Government of the appointment of a Committee of Enquiry into the operation of. the Stevenson Restric- tion Plan.
The rally of the past few days has been generally attributed in the market to the fact that some further announcement on the matter by the Government is probable previous to the Easter recess, and, indeed, it is just possible that before this article appears in print the announcement may have been made. So far, however, as may be judged from those who follow the rubber situation most closely, any hopefulness concerning this announcement seems to be based upon the somewhat slender 'foundation that it should at least put an end to the uncertainty which has characterized the market since it became known that there were doubts as to the con- tinuance of the Restriction Plan.
AN EXPERT VIEW.
I observe that a rubber expert writing recently in the general columns of the Morning Post, said that the position might at the moment be described in the statement " that at present the world is capable of producing far more rubber than is required, that no combination between producers to restrict output is possible, except by means of Government restriction, and that the only alternative to compulsory restriction is restriction by the force of economic law through a very much lower price than now obtains." I find this view so consistently confirmed in rubber circles that it may be said to constitute a kind of starting point for a consideration of the outlook.
AN ANXIOUS PERIOD.
It is an outlook which must be giving shareholders in rubber companies considerable anxiety at the present time, for already in the case of the best-class companies the fall in the price of rubber has meant a great drop in profits, and if there is to be no early recovery in price, there can be little doubt that some of the weaker com- panies will have to go through a bad time. As is usually the case during boom periods, a great number of companies were floated some few years back, with large capitals, and at the time I endeavoured to press home the need for great discrimination in the matter of selection,
RESTRICTION DIFFICULTIES.
Quite apart from the drawbacks and difficulties usually to be associated with any plan for restricting artificially the output of a commodity, the success of the Stevenson Plan for maintaining a moderate, but stable, price for rubber by the compulsory restriction of rubber exports from Malaya and Ceylon seemS to lave been imperilled from the outset by two important factors. The first was that the Dutch planters refused to join in the arrangement, with the result that not only had British rubber to Withstand the ordinary competition, but the very fact of the Stevenson Plan producing a rise in prices not only stimulated efforts in other directions not bound by the arrangement to limit exports, but in particular stimulated forward sales by the Dutch growers to take -advantage of what they rightly regarded as a somewhat 'artificial price brought about by the Stevenson Plan. AnOther factor was the stimulus given to the growing of native rubber in the Dutch East Indies, where it is believed that' since 1925 the planted areas have been doubled, - so that unless the Dutch growers should be joining in the Stevenson Plan, which at present seems to be improbable, any scheme of restriction would have to withstand not only the continued selling by Dutch producers, but the increase in the supply of native rubber owing to the increased areas planted. Moreover, in the case Of the native rubber, it is `generally recognized that any kind of organized restriction' of exports is well-nigh impossible.
THE OUTLOOK.
At first sight, therefore, it might almost be assumed that the position- of the holders of British Rubber shares was a desperate one, that abandonment of restriction was a foregone conclusion, and that following such abandonment nothing but a further material fall in rubber was to be looked for, with a consequent collapse on the part of many companies. That this mournful view is not taken, however, may be gathered from the fact that, although there has been a great fall in Rubber shares, prices are still at a level which shows that there is a certain amount of quiet hopefulness for the future, and in the case of the sound companies, at all events, I am inclined to think that this hopefulness will be found to be justified. In the opinion of the Rubber Market, the enquiry instituted by the Government has been very thoroughly and soundly conducted, and there is every likelihood that the recommendations will be based upon a far view of the situation and, above all things, will recognize, as the Stevenson Plan did not, all the facts of the situation. It may be that a modification, rather than an actual withdrawal, of restriction may be the order of the day, in which case steadiness of price at round about the present level seems to be looked for, with a recovery later varying according to the conditions of general trade and the demands for rubber.
FINDING A NATURAL LEVEL.
In a good many quarters, however, it is thought that it might be better if matters were allowed to take their natural course and that, should all restrictions be abolished and a further fall in rubber result, the effect might be to discourage fresh production and ultimately bring about a measure of stability at a fairly low price calculated to increase consumption. With such large stocks in warehouse, however, and with an almost certain increase in supplies of rubber during the next year or two, it is difficult to see how there can be any important recovery in price in the immediate future, and I would counsel those who may be holders of Rubber shares to make careful enquiries from responsible quarters as to whether the shares they hold are of sound financial concerns. If they are, it seems to be a case of patient waiting for better results later on ; if they are not— well, it would be desirable, perhaps, if they were to seek their brokers' advice, as the next year or two promises to be a period of severe testing. ARTHUR W. KIDDY.,
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