China’s New Vassal
How the War in Ukraine Turned Moscow Into Beijing’s Junior Partner
TIN is in the singular position of having its deposits located in the non-industrial countries of the world, such as Malaya, Bolivia, Dutch East Indies, China, Siam and Nigeria, while it is consumed almost entirely by the great manufacturing centers of the United States and Europe. By force of these geographical circumstances tin falls into that group of commodities which must be considered from an international point of view. The general problem is further complicated by the fact that some authorities predict the exhaustion of the world's tin supplies within the next decade. Such a possibility naturally tends to aggravate the more immediate problem regarding the political control of present resources. The purpose of the writer is to give a brief analysis of world production, consumption, ore depletion, smelting capacity, tariffs, and price fluctuations, and so prepare the ground for a better understanding of a problem in which most modern nations have a direct interest.
I. PRODUCTION AND CONSUMPTION
In the year 1925 the tin production of the world reached a new high point, and though production in 1926 fell somewhat short of what it had been in 1925 it nevertheless exceeded that of any other previous year.
Graph I on the following page indicates that the production of the British Empire for the year 1925 amounted to 42.64 percent of the world's total. (The average British production for the five years 1920-1924 had been 41.19 percent.) Bolivia and the Dutch East Indies come next with a production of approximately 22 percent each. The remainder is scattered among four or five other non-industrial countries. It is interesting to note that of the total production more than two-thirds comes from alluvial deposits; the chief exception is the Bolivian production. It is the opinion of some experts that lode mines go deeper into the ground and carry larger reserves, so that while alluvial mines are expected to diminish in production, the lode mines are expected to show an increase. In the last few years the Bolivian tin production has been increasing and R. L. Hallett has predicted that "with the decrease in the production from the Straits Settlements, the indications are that before very long the Bolivian tin deposits will be the most important in the world, and Bolivia will probably be the leading producer."
The second graph shows the consumption of tin, by countries, for the year 1925. It will be seen that the metal is consumed almost entirely in the industrial countries of the world, with the
United States leading, England second, then Germany and France fairly close together, and Italy, Canada, Belgium, Czechoslovakia and Holland following.
The two graphs together illustrate the interesting fact that although the United States is the largest consumer of tin in the world, using more than all the other countries put together, it produces practically no tin whatever within its own territory. The commercial control of tin ore deposits by American citizens or American corporations has, however, been increasing in the last few years. The Guggenheim Brothers have been developing the Caracoles mines in Bolivia, and in July, 1924, the Patino Mines and Enterprises, Inc., Consolidated, which owns extensive mines throughout Bolivia, became an American corporation. But the prospect of the United States ever controlling a sufficient supply of tin to satisfy its full needs is beyond the hopes of even the most optimistic.
Great Britain is second to the United States in the consumption of tin, having consumed approximately 14.6 percent of the world's production in the year 1925. The amount of tin produced in the British Empire during the same year was 42.64 percent of the world's total, so that the British controlled about 28 percent more of the world's total production than they themselves required. Such industrial countries of the European continent as France, Germany, and Italy, which are considerable consumers of tin, are in a position somewhat similar to that of the United States. Although large consumers of this commodity, they have practically no production within their own political territory and no commercial control of any tin ore deposits outside of their territory. Belgium has a small tin production in the Katanga mines in the Belgian Congo; and in 1923 a smelter was opened near Antwerp by the Societé Générale Metallurgique.
II. SMELTING CAPACITY
So far our discussion has pertained entirely to the metal content of tin ore production. The ore is of course not a finished product, since it must be smelted and refined before it can be used in industry. The location of the smelting industry is quite as important in the consideration of the general problem as the location of the ore supplies, although it is obvious that the location of the mines cannot be changed, whereas the smelting industry may be transferred if conditions are favorable. The tin smelting capacity of the world is estimated at approximately 145,000 long tons at the present time, distributed as follows:
|British Empire: United Kingdom||40,000|
|Dutch East Indies||16,500|
Before the war Germany had developed a considerable tin smelting industry, the supply of ore coming from Bolivia. During the war the plants had to be shut because of lack of ore. However, during the year 1926 a new tin smelting plant was erected in Germany and is already operating successfully. The German people have for many centuries been expert in the smelting of ores of all kinds, so that it seems likely that the tin smelting industry may regain its pre-war position in that country. However, due to restrictions in the export of the ore from the British dominions (which as we have seen produce approximately 43 percent of the world's total), and the fact that the ore from the Dutch East Indies is either smelted in its own territory or in the Straits Settlements, Bolivia is the only remaining source of ore supply for smelters not under British control.
Tin smelters twice made serious attempts to set up an industry in the United States. The first was in 1903. The boats of the Standard Oil Company, which was then engaged in exporting oil to the Orient, were habitually compelled to return empty due to the lack of available cargo destined for the United States. It was planned to use these returning ships for the transportation of tin concentrates purchased in the Straits Settlements. The Governor of the Straits Settlements, however, became aware of the activities of this new American organization, and was fearful of its competition with the smelting operations of the Straits Trading Company. Largely on his advice, a law was passed prohibiting the export of tin concentrates from any of the colonies of the United Kingdom, except under a heavy export duty which was designedly prohibitive. This was a blow that the American enterprise could not survive.
The outbreak of the Great War offered the United States a second opportunity to enter the tin smelting industry. The Bolivian tin concentrates which before the war had been smelted in Germany had to find a new outlet. Furthermore, the flow of tin from the Straits Settlements was endangered, while the additional use of tin for war purposes increased the demand. The result was a continued rise in price, with a high point of $1.10 per pound in the year 1918. This conjuncture of favorable circumstances stimulated an American desire to venture again into the tin smelting business. In 1916 the American Smelting and Refining Company began building a tin smelting plant at Perth Amboy, N. J. and in 1917 the Williams Harvey Corporation built a plant in Brooklyn, N. Y. In 1919 two or three other plants attempted tin smelting on a commercial scale, but they did not succeed and went out of business shortly. The general depression of 1921 found tin in a very vulnerable position and the price fell precipitously from a high point of about $1.10 to a low of about 27c per pound. This condition of general business depression, along with continually decreasing returning charges (allowances for the smelting of tin ore), made tin smelting unprofitable. Attempts were made to lower costs both in this country and in England, but economic conditions in England were such that the smelters in the United States could not, without a tariff on tin as an artificial aid, sustain the test of competition. The result was that the American Smelting and Refining Company closed its plant early in 1923. Shortly thereafter the Williams Harvey Corporation also shut down its plant and arranged for the transfer of its tonnage to the Williams Harvey Co., Ltd., Liverpool. At present no tin smelting is being done in the United States.
Efforts have been made from time to time to encourage the discovery of tin mines in the United States. In the latest tariff act, that of 1922, tin ore appears on the free list, with the provision, however, that a tariff of 4c per pound shall be imposed as soon as mines in the United States are producing 1,500 tons of tin per year. This provision was also contained in the tariff acts of 1909 and 1913. Its purpose was to stimulate domestic production of tin ore. But such efforts have thus far had no effect whatever. A duty of 2c per pound on imported metallic tin was proposed in the first draft of the Fordney Tariff Bill, 1921, whereas tin concentrates were to be exempt from duty. The obvious object was to accomplish the transfer of the smelting industry, at least for Bolivian ore, to the United States. However, this section was eliminated in the final bill as it went through the Senate. Even if there were a duty on tin metal, and the concentrates were smelted in this country, we would still be dependent upon the Straits Settlements for approximately 25,000 tons required by our tin plate industry, no other grade of tin having as yet fulfilled the exacting requirements of this industry.
III. PRICE FLUCTUATIONS
Tin has always had the reputation of being a highly speculative metal. The most important single factor in the price fluctuation is the extent of the so-called "visible supply," which is taken to mean tin actually in sight, either afloat or in warehouses. Ordinarily, when the supply is low the price is high, and vice versa. However, the peculiar characteristic of the tin market is that the visible supply fluctuates between a low of about ten thousand and a high of only about twenty thousand tons, so that an increase of a few thousand tons in the visible supply is likely to affect the price of the metal considerably. This is the reason that tin is so speculative and attracts a host of traders. The total quantity of tin represented by sales transactions has been calculated to be ten times as large as the amount actually consumed.
Although the United States consumes over half the tin produced each year, London is nevertheless the trading center of the world and the London Metal Exchange sets the daily price for standard tin, with differentials for other grades. The New York Metal Exchange is an exchange in name only, its transactions being practically negligible.
The immediate cause of the recent active discussion of prices among the tin dealers and the irritation on the part of the tin consumers[i] is found in the fact that the metal has been rising in price for nearly a year and has now reached the highest point since the war and post-war inflation periods of 1918 and 1919. Straits tin for immediate delivery reached 64½c in 1925, and sold as high as 72½c per pound during November, 1926, compared with a high of about 39c per pound in 1922. Furthermore, during most of 1925 and practically all of 1926 spot tin (tin for immediate delivery) has been selling at a higher price than three months tin. The "backwardation" (the term used when spot tin sells higher than tin for future delivery) in the past year has ranged from 3c to 4c per pound, which is unusually high. It seems that as the price of tin kept advancing, speculators, expecting the market price to decline, sold three months tin short; but at the expiration of three months had to make delivery, and were therefore compelled to buy spot and take their losses on the difference. Another factor to be mentioned is the recent tendency of "hand-to-mouth" buying on the part of consumers, which has increased the demand for spot tin for immediate use.
IV. FUTURE SUPPLIES
It is perhaps natural for consumers of tin to see in the rising market the manipulations of some combination rather than to realize that the higher prices are merely a result of the normal operation of the law of supply and demand. It is a fact that the production of tin has been rising in the last few years and that the year 1925 witnessed the largest production that the world has seen. But the number of independent companies and individuals mining tin is so great that a combination or any sort of understanding to limit production would be rather difficult to achieve. While it is true that the smelting of Straits tin is entirely in the hands of two large companies, the Eastern Smelting Company and the Straits Trading Company, their stated policy is not to hold any tin for their own account but to sell it all immediately for smelting, thus protecting themselves against the vicissitudes of the market. The fact is that although the tin supply has been increasing, it has nevertheless failed to keep up with the rising demand, especially in the United States.
The general situation is a difficult one and many qualified experts have asserted that any future decrease in price must come about through a decrease in consumption rather than through an increase in production. The more pessimistic believe that the sources for further supplies are limited and that the present rate of consumption is rapidly bringing about the exhaustion of the world's tin resources. For example, G. Temple Bridgman, mining engineer for Guggenheim Brothers, foresees a production of tin at about the present rate for the next ten years, with acute price fluctuations synchronizing with general prosperity; and "a constant, fairly rapid, and virtually complete approach to exhaustion" of the world's tin resources thereafter, with no limit to the levels to which prices may rise.[ii]
These predictions, however, even if acceptable on all other grounds, are of course based upon present knowledge of the technique of mining and smelting. There are millions of tons of low grade tin ore in South America and in other countries of the world which thus far have had no commercial value, due to the lack of sufficient technical knowledge to make their treatment commercially profitable. Just as the changes in the copper mining industry made it possible and profitable to mine very low grade copper ores, so improvements in the tin mining and smelting industry may make it profitable to mine and smelt the vast deposits of low grade tin ore which have heretofore been neglected. It is to the scientific advances yet to be made in the technique of mining and smelting that we must look for aid, so that more of this important metal may become available for commercial purposes. The problem is not simple; but the solution, at least for the large consuming countries such as the United States, lies not in reducing the consumption of tin but rather in improving methods, so that what are now considered poor deposits may be made productive and profitable.
[i] In the New York Evening Post on Oct. 4, 1926, an article by one of that paper's foreign correspondents bore the headline: "Britain Is Victor in Tin Price Wars With U.S. Buyers." The article began as follows: "The next annuity on the British war debt to America,or at least a substantial part of it, will be paid by American buyers of tin, as the previous one was paid by the American buyers of rubber."
[ii]Engineering and Mining Journal, Oct. 23, 1926, p. 674