The effects of devaluation on raw material prices

 No. E 74 66981 This report is not to be published nor may it be quoted as representing the Bank's views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE EFFECTS OF DEVALUATION ON RAW MATERIAL PRICES December 21. 1949 Economic Department  '~ABLE OF CONTENTS Notes on Raw 'Wool I Notes on Cotton II Notes on Jute and Jute Products III Notes on Rubber IV Notes on Non-Ferrous Metals V Notes on Oil VI Notes on Cocoa VII Chart 408 - Selected Netal Prices in US and UK before and after Devaluation. Chart 409 - Prices of Selected Raw Materials in Various Markets before and after Devaluation. A s~~ary estimate of the effects of devaluation on ra\.J material prices and on the balance of pay- ments of underdeveloped countries is being prepared and will be circulated later.  Economic Department Prepared by P.F. Craig-Martin APPENDIX! M.F. Perkins I. GENERAL BACKGROUND 1. World stocks of wool on July 1, 1949, totalled 1 1 350,000 metric tons, compared with 1,600,000 tons on July 1, 1948, and a normal pre-vIal" level of 800,000 tons. 2. World production, consumption and trade in all wool (apparel and carpet) in 1948 were as follows: ~J.sand. Hetri.9. T.Q!l.!L(grease .Y~) bl !J:.qQ~~~~I Jmportl'l ~;,;.~ . Consumption - Average Average Ave!'age Average l2JJtf38 194§ 1934/38 1948 1924!3~1 ~948 1934/38 19L8 (prelim.) (prelim.) United Kingdom 50 34 285 262 21 10 364 364 Continental Europe 182 158 461 539 12 7 632 675 United States 193 131 107 381 274 551 Canada 8 5 10 26 3 1 17 20 Australia, New Zealand & South Africa 702 755 649 833 35 67 Argentina 169 209 150 195 24 51 Uruguay 51 73 56 61 2 6 Other 36Q 352 ,95 _1:)2 34,;2 -271 Total 1715 1724 986 1209 -- 1691 2005 Total Excluding U.S.A. 1522 1593 2§.9 1W lli1 14~4 2l Seasons beginning July 1, or October 1, in the Southern Herai- sphere and in the spring in the Northern Hemisphere • .:21 Estimated. Source; Food and Agriculture Organization 3. L-ior1d production of apparel fibers as a whole has inoreased since 1909/13 faster than world population but the increase for wool has been less than for population. Synthetic fibers now account for about 13% of world - .. 'I 11 The discussion relates particularly to apparel wool.  - 2 - production of apparel and household fibers, compared with their pre~war pro- portion of 7%. Wool types represent from 1/5 to 1/4 of totaJ,.rayon staple fiber output. Wool type staple fibers in 1939 amounted to about 1/8 to 1/6 of the" clean weight of apparel wool production and ourrent output, although still below pre-war, i$ expanding at a rapid rate. . . 4. Year to year changes in the volume of world wool production are small. It takes from two to three years for a sheep to grow wool at the full yield. 5. The relative stab~lity of production contrasts sharply with violent changes in wool prices~ The bulk of wool produced is normally sold each year and end of season stocks are generally very small. Further; anticipation of a high degree of price variability tends to enlarge manufacturers and traders stooking and de-stocking operations. Hence, the full effect of changes in the demand situation have normally been reflected in sharp fluctuations of prices. 6. The effect of price changes for raw wool on prices of finished wool . . goods is relatively small, Rough estimates of the value of components of a man'a suit are as follows: @:65 man I s suit ,~122 man IS· suit Woolen cloth 25 - 33 .. 3% 20 - 25% Raw wool ~ 7 •. 10% 3 .;. 5% According to a report provided to the Australian Wool Board the cost of raw wool is equal to 12% of the selling price of a <li44 man' a suit. 7. In the post-war period world consumption, particularly of apparel wool, has been running in excess of current production. This has resulted in a considerable reduction in stocks which were built up during the wartime  - 3 - perlod~ At the end of the war, these stocks were mainly in the United King- dom, whioh held 1,445,000 tons, a quantity equal to one year's world con- sumption at pre-war rates. Experts at that time considered that these stocks would take 12 to 13 years to liquidate but owing to the high level of cOll- sumption in the post-war years these stocks are expected to be reduced to only working levels by mid-1950. As demand was concentrated largely on the finer' wools, stocks of these types were depleted relatively more quickly; in consequence, there was a rapid rise in the prices of finer wools in 1947 and 1948. The stock, producti0n and disappearance picture is shown in the table below for apparel wool only: ; World Supply and Disappearance of Apparel i";ool (thousand metric tons grease basis - season beginning July 1) 1934/.38 Average 1946/47 1947/.48 1948/49 Opening stocks 650 2.300 2040 1605 Production lBQ 1340 .1112 136.5 Total Supply Consumption 1970 1320 .3640 1600 - .3355 1750 2950 1700 Closing stocks -650 2040 1605 m.g Consumption as a per- cent of production ;hOD ill ill ill Source: Food and Agrioulture Organi~ation 8. u.s. imports of raw wool in 1948 accounted for 70% of total UoS,. consumption compared with only 40% pre-war. This situation was brQught about py a decline of 32%io production while consumption increased by over 100%; thus 16% of the increased imports over pre-war was due to the decline in pro... duction and 84% was due to increased consumption. Thus the chief factor which  - 4 - has affected the post-war world wool market as compared with pre-war is the entry of the United States in wbrld markets on a considerably larger scale. There are a number of reasons for this: a high level of consumer incomes has increased demand on a per capita basis, civilian war4robes and pipelines were relatively low following the war and population had increased, and last but not least, the decline in U.S. domestic production of wool. U.S. consumption of wool is given in the table below: U.s. Mill Cpnsumption o!~ (cleaned basis - thousand metric tons) Period - Qomestic A12]2arel Wool Foreign ~ , .......... Oarpet vlo01 Per Ca]2itg. (Largely foreign) (Rounds) 1935/39 102.8 24.6 127.4 2.17 43.5 1940/44 94.1 138.5 232.6 3.77 31(>9 1945 54.5 212,5 267.0 4.20 25 :; 1946 50,6 230,B 281.6 4.29 58.0 1947 73.1 165.4 23B.5 3.63 78.2 1948 n.a. n.a. 219.5 3.31 94.2 1949 (estimated) n.a. n.a. 149.5 2~22 90.::> Source: U.S. Department of Commerce It is apparent from the table that both total and per capita consumpti~n of apparel wool in the United states has declined considerably since 1946; the backlog demand has been satisfied and the abrupt decline i4 1949 reflects the end of the post-war textile boom. A similar reaction was experienced in the carpet wool market in 1949. Allowing for some recovery in these markets for 1950, under the assumption of full employment, apparel wool mill consumption should average 2.5 pounds per capita or 170,000 tons cleaned basis; after al10win~ for a domestic olip of 55,000 tons a residual of 115,000 cleaned basis tons would roughly indicate import requirements assuming no stock  - 5- change. Carpet wool consumption may be estimated for 1950 at 85,000 tons (all imported). Thus total import requirements for wool would approximate 200,000 cleaned basis tons or approximately 350,000 tons grease basis in 1950. 9. World consumption of wool, excluding the United States,in 1948 was practically at pre-war levels, as shown on page l,in spite of the increase in population which has occurred since pre-war and the depleted state of the world r s wardrobe.. The baCklog demand cannot be said to have been :fully satisfied as yet. Hence consumption of wool in 1950 is not likely to de- cline below 1948 levels. 10. Should these conclusions hold true, then world consumption of wool in 1950 should total approximately 1,900 thousand metric tons. This will exceed world production probably by some 5 to 10%. A further reduction in stocks may thus be expected. 11. Prices for wool roseto a peak in December, 1948, for reasons ex- plained above. At that date they were 55 to 115% above pre-war levels ac· cording to grade. Prices broke sharply -- 18% between end February and end May -- largely under the influence of reduced purchases by the United states. During the summer, prices became firmer and just prior to devaluation price levels were very slightly above end of May but still some 20 to 2~% below the peak of December, 1948. The revival of demand for wvol in the United States in the last half of 1949 would have resulted, in some strength- ening of the m~rket and, if devaluation had not occurred, prices would have risen further without reaching the December, 1948 peak. II ~ tHE EFFECTS OF DEVALUATION 1. Immediately following devaluation the prices of foreign wool in  - 6 .;. Boston for forward delivery from Australia and South Africa deolined by 20 to 25% as compared with prices ruling in the immediately preceding week. Thereafter these prices have advanced until they are now (December 3) some 7 to 8% below pre~devaluation prices. This is indicative of some underlying strength in the market. Raw Wool Prices (US dollars per lb.) London spot Boston, Forward Deli~ery in Bond Dominion Wool ustralian SoAfrican lJruRua;yan Week Ended 64' s 70' s y.4"E! .~ 6 70' S 6!J70 f S . 58/60 1 s (Clean basis) d per Ib . . ) , (olesn basis)' (olean bas:&:s) (~ase' basis) September 17 1.35 1.48 (80 88) 1.40 - 1.44 1.40 - 1.44 0.68 ... 0.69 September 24 1.06 1.13 (91 97) 1.10 - 1.14 1.08 - 1~1l 0.68 - 0.69 October 1 1,12 1.23 (96 106) 1.16 - 1.20 1.13 - 1.16 0.68 - 0.69 October e _hi ( ,h/l . 16 - 1.20 1.18 ... 1.22 0.68 - 0.69 October 15 1.17 bl l.2~ (1002 107~lo17 ... 1.21 1.18 - 1.22 0.68 - 0.69 October 29 - 1.20 • 1.24 1.20 ... 1.;,24 0.66 - 0.67 November 5 not available 1.24 - 1~27 1.21 ..: 1.24 0.66 - O•. 6?al November 12 not available 1.27 ... 1~30 1.24 ... 1.28 0.62 - 0.6,P' November 19 not available 1.27 - 1,30 l.24 - 1.28 0.65 ... 0.66 December :3 not available 1.31 - 1."34 1.28 ... 1.32 0.69 - 0.70 al Nominal) ~ October average price. ~; These price series for Boston are not comparable with those in the Appendix table owing to differences in grade average. Source: The Commercial Bulletin and CEEC , Wool Intelligence. 2. As the cost of raw wool in the average item of clothing is ralative1y small (5 to 10%) a deoline in the prioes of wool in the United States of less than 10% wo~d have insignificant effects on the price of clothing and hence on the amount consumed. Consumption and imports of wool into the United States or Canada cannot,therefQre, be expecte~ to increase as a result of devaluation.  - 7 - .3. Unite'dStates imports of woolen goods 1n 1948 were under ),000 metric tons and accounted for less than 1% of total. conaumption. A reduction in the dollar price of imported cloth of the full amount of devaluation, would have little effect on the price bT clothing manufactured f+om i'mported oloth and coneequently on the volume of cloth imported. The reduction in the price of clothing would be less than 5%. ,. Furthermore the use of imported cloth is largely restricted to custom tailors who cater to a restricted market, and whose marks up. account for .30 ... 40% of the retail price of suits., 4. United Statest'exports of woolen textiles in 1948 were tmder 6,000 metric tons or 2% of domestic production. This represents a decline in the volume of exports of' ;0% as compared with 1947. A shrinkage in United States e~rt markets in favor of other exporting countries was thus occurring even before devaluation.- Devaluation should reinforce this trend. 5. The relatively restricted size of the Canadian market and a 40% expansion in manufacturing capacity since pre-war limits the possibility of any significant increase in raw wool imports or shift between woolen textile imports and domestic manufacture. 6. Since exports of woolen textiles to the dollar area from non-dollar oountries are not likely to show a great expanSion, there will be little in- Qrease in the derived demand for wool on this acoount by non-dollar countries. 7.A rise in the price of wool, by the full extent of devaluation, would limit increases in the domestic prices of suits in non-dollar oountries to somewhat less than 10%. 'III.. co~rr}t.U§ION§ 1. 'World consumption is likely to rUl'l, for the next year or so, at above current production levels sO that stocks shoulCl. und~rgo further reductions.  - 8 - This should have the effect ~f keeping wool prices relatively firm. 2. "lith normal level;:! of business activity, United States' wool con- SumptiOlf may be expected to decline from 1948 levels and has in fact already done so; the demand for foreign wools will still be at oonsiderably higher levels than pre-war. Meanwhile, demand in the rest of the world is likely to remain at 1948 levels. 3. United States' import requirements in 1950 should amount to about 350,000 tons of wool showing some tendenoy for recovery from the 1949 level (300,000 tons) but not to 1948 levels (,380,000 tons); oOnsumption elsewhere should also be strong. In consequence, world consumption in 1950 should a~ain exceed world produotion. 4. Prices, therefore, in 1950, disregarding the effects of devaluation, would probably have shown some recovery from the mid...year 1949 lows, assuming a Qontlnued high level of business activity. 5. The immediate effect of devaluation was to reduce prices of wool, from devalued oountries, in the United States by 20 to 25%. Since that time, however, prices have risen to a point about 7 to 8% below pre~evaluation levels in the United States. 6. U"S. demand for wool represents about )0% of world trade. The el- astiofty of demand both in the dollar and the non~ollar areas is very low. In view of shrinking stocks, the elastioity of supply in 1950 is not very high either. Devaluation will probably have only a very slight effect on the division of exports as between the dollar and non-dollar area~. Under these circumstances, devaluation should raise non-dollar prices of wool by about 75% of the rate of devaluation, i.e~ by about 30% and lower dollar prices by 25% of the rate of devaluation, i.e. by about 10%.  - 9 - WOOL PRICES: 6~ - 70's Clean Basis (US dollars per lb.). Be ston 11 London 2:/ Differences 1946 June 0.65 0.64 . -0.01 1947 December 1.29 ·1.26 - 0.03 1948 January 1.39 1.43 j. 0.04 February 1.56 1.5.3 - 0.03 March 1.37 1.34 -0.03 April 1.52 1.5.3 ';'0.01 May 1.86 1.68 - 0.18 June 1.83 1.87 .;. 0.04 July Not Reported 1.81 August 1~81 September ".1.62 If 1.68 .;. 0.06 October 1.49 1.68 .;. 0.19 November 1.70 (6 only) 1.75 .;. O~05 December 1.84 1.75 - 0~09 1949 January 1.86 1.83 - 0.03 February 1.91 (26 only) 1.85 - 0.06 March .1.87 1.76 - 0 11 0 April 1.64 1.55 - 0.09 May 1.58 1.58 June 1.58 1.53 - 0.05 July 1.59 1.60 .;. 0.01 Au,gust 1.59 1.60 .;. 0.01 September 1.46 1.55 .;. 0.09 October 1.25 1.21 .;. 0.04 1/ Forward Delivery, in bond. Quotations represent averages of weekly averages of 64/70'8. . Dominion vools based on quotatiQns from U.K. and Dominion sales and adjusted to London delivered equivalent. Quo- tations represent the mid point of the fall and of the subsequent rise for averages of 64's and 70's. Notes: Quotations shown above are averages of quotations for various types of wool of the given staple lengths whioh show a range, at present, of 6% above or below the averages. Source: Boston Commercial Bulletin and CEEU Wool Intelligence Economic Department Prepared by P •.F.. Craig-Martin APPENDIX II M4 F.. Perkins I .. GENERAL BACKGROUND , - NarES ON CarTON 1. Although there are many varieties of cotton, they all stem from three species of different staple lengths. \A/orld .Cotton Produotion Class!fied by t?taple Lengths ;}.938L3<t 1248(49 Per Cent Per cent Shorter than 1 inch 47 32 1 inch through 1...3/32 inches 41 58 1-1/8 inches and lnnger 12 10 . Source: . International Cotton Advisory Committee • The bulk of .the world's cotton produQtion is of staple lengths -- be- tween 7/8 and 1-3/32 inches. The United States, Brazil and Pakistan are the supplters of the bulk of cotton on these staple lengths. The shorter staple lengths (under 7/8 inohes) are produced largely in China, India, Iran and Turkey. Long staple cotton (over 1-3/32 inches) is produced in Egypt, the Anglo-Egyptian Sudan, the British West Indies and British East Africa" These long-staples may be divided into "long-staple" and "extra- long staple," h·3/Sinches or more in length. Egypt accounts for over half the world supply of all long-staple ootton and over three-fourths of the extra...long staple. Ashmouniand Zagors varieties -- 59% of Egyptian cotton - represent the bulk of the ordinary long-staple varieties produced there~ Of the extra-long-staple Egyptian varieties (41% of Egyptian production), Kar- nak represents over 50% of the Egyptian supply; two others of some,·rhat ahorter staple - ... Menoufi and Giza 30 - account for the bulk of the re- mainder. In the 1920's and early 1930's, the charaoteristic extra-long- staple variety was the well-known Sakelaridis which was later replaced by Karnak~  - 2 - 2. World production, consumption and trade in raw cotton in 1948, compared to pre-war were as follows:- Million Bale~ ProduotiO~ Im~rts!l Exoorts!l consumpt1o~1BI 1938/J2 1948/42 193~T 1248/49 1928L39°'i948/49 1238L:29,' ~948/49 United States 11.6 14.6 0.1 0.2 3.3 4.7 6.9 7 .. 8 Canada 0.3 0.4 ... 0.3 0,4 Brazil 2.0 1.5 0.1 0.1 1.6 1.0 0.6 0.8 Other Amerioa 1.1 1.4 0.1 0.6 0 .. 5 0.5 1.0 Europe (incld. USSR) 3.9 2.6- 7.4 7.8 0.1 0.4 12.G 9.6 Egypt 1.7 1.8 1,7 1.6 0.1 0.2 Other Afl"ica Japan 0.9 1.1 2.8 0 .. 8 1.1 1 .. 1 - 2 .. 7 0.1 0.7 India ) 1.9 0.9 0.3 3.5 2.7~ ) } Pakistan 5. 2 ) 0.9 0.4) 0.7 3.4) 0.2 Other Asia 3.1 2.8 0.4 0.6 0.6 0.2 4.0 3.5 Other - ..- - ----.- ...Qdt ...Q..J; - -- -- --- -.9.1 TOTAL - 29.5 28.6 a/ Seasons beginning August 1. 11.9 11.0 11.7 10.5 30 .. 5 27.9 y Estimated. Souroe: Food and Agriculture Organization 3. ltJorld etocks of raw cotton on August 1, 1949, were 0.5 million bales or 3% greater than a year earlier. United States stocks increased by 2.20 million bales or 71%, while other stocks declined by 1.7.million bales or 15%. The marked post-l>1ar decline in world stocks indicates the strong demand for cotton; the rapid decline of non-dollar stocks after 1946, while dollar stocks increased, reflected the dollar shortage. N~n-dollar stocks are now at about necessary '.forking levels. \~l()rld_Stocks as at August 1 (million ba1en) United States O:"her Tot'll 1938 - 11.S3 12:67 '24:20 1945 11.16 17,55 28.71 1946 7.33 17.53 24.86 1947 2.53 15.47 18.00 1948 3.08 1l.12 14.20 1949 5.28 9.42 14.70 Source; . Food and Agriculture Organization  - 3- 4.. World consumption and trade in yarns and cotton manu.factures in 1948, compared with 1938, were as tollows; .... Yarn l>i"Anufactures Q.(;msumE~ Imports----'-Exporis . Imwrtg ; . :g;;ports of Textiles ~ 191;8 ~ ~ ~938' l2t& 1~18 1948 1938 19L& (thousand metric tons) United states 1 1 5 13 6 :3 32 94 1300 1937 Canada 2 4 9 20 1 1 67 102 Other .America 20 17 1 III :30 1 15 380 4:32 Europe (incld. USSR) 97 50 167 85 64 95 320 2:34 1989 1767 Japan 20 5 ... 325 40 410 85 Other Asia 57 35 28 23 332 130 31 48 1878 1671 Africa 21 11 159 128 213 205 Other - 2 -2 -- - - ..a2 26 -- -- ~ --21 Estimatee fotar- - 200 sQurQ~: 125 220 127 710 4:32 Food and Agriculture Orgarnzat:fon 710 - 432 -- 6277 6250 5. Changes in the volume of raw cotton consumed are closely related to changes in industrial activity. World production tends to fluctuate annl,lally more than world consumption while prices fluctuate even more via... lently. , 6. The effect of price changes for raw cotton on prices of fi~shed cotton goods is rel~tively small. The cost at raw cotton in'tbe cost of f cotton cloth rattge,*, fTom 30% to 45% and the cost crt' raw cbttdn in the !Jost nf made-up cotton goods ranges fram 10% to 15%.11' 7. The position of the United states as a producer of one-third to one-balf of the world's raw cotton influences strongly world prices and world production patterns. During the inter-war period United States high price policies encouraged production elsewhere. A continuation of a policy of price support (together with a dollar sbortage) may be expected to result . 'G 11 United States Department of Commerce  ~ 4 - in acreage restriction in the United states and a contraction of United Stat.es exports, unless subsidized. YaSe Prop,ortion of '!tlorld Production & E?ffiorts of Raw Cott2n Average Production , EX120rts 1925/29 56 60 1930/34 52 58 1935/.39 41 43 194~/49 50 45 8. Attempts to increase production outside the United States will meet obstacles in the world food shortage (India), scaroity of labor (Colonies), and the need to maintain proper crop rotations (Egypt). In consequence, marginal non.dollar supplies required to replace United States cotton will be high cost cotton and will tend to raise the prices of cotton relatively to substitute fibers. 9. High priees for cotton together with continued shortage of non. dollar ootton is likely to stimulate the production of synthetics, parti- cularly rayon, Equilibrium will be attained when the expansion in cotton production plus synthetics is sufficient to meet demand at the price established. In th;ts event, synthetics are likely to play the part ot bridging the gap in apparel fibers and will influence the prices of suoh fibers. OWing to the high level of fi~ed costs in the rayon industry and the small chance of rapid changes in technology, it is probable that any reduction in rayonataple fiber prices will be slow and, consequently, raw cotton prices will continue well above pre""war levels. 10. The volUllle .of world trade in cotton textiles is unlikely to re- cover to pre.war levels owing to a shift towards a greater consumption of synthetics and an increase in te~tile manufactt~e in areas of cotton pro- duct ion.  ..;; 5 - II. THE EFFECTS OF DEVALUATION A. D911ar marketp (U.S.A. and Canada) (1) U.S. imports of raw cotton are limited by quota and account for only 2% of U.S. consumption~ The 1948/49 quota was fixed at 01,000 bales. Egypt was the source of 97% of imports in 1948/49 compared with 98jb pre-war. (2) U.s~ exports of raw cotton in 1948/49 amounted to 4.75 mil- lion bales, (45% of world exports). Exports in 1948/49 were a little more than double those in 1947//.8, and 43% above 1938/39. Exports to Marshall Plan countries totalled 3.0 million bales in 1948/49, but, as a result of redUctions in ECA appropriations, these countries have cut planned imports from the United States for 1949/50 to only 2.6 million bales. (3) The main export supplies of raw cotton which compete most directly with United States growths come from Brazil and Pakistan, which have not devalued. (4) U~s. cotton prices for Middling 15/16" averaged 32.113 cents per peund for 1948/49, falling to 29.67cents just before devaluation, com- pared with 34.58 cents for 1947/48, and 11~18 cents for 1934/38; the U.S. support price has been fixed at 29.43 cents for 1949/50. Since devaluation U.S. prices for raw cotton have continued to fall slightly (by 1.5%) and are now at support levels. (5) U.S. imports of cotton textiles totalled 3,300 metric tons in 1948, compared with 1,700 in 1947 and 5,800 in 1938. Duty paid in 1948 was equivalent to 24% of the f.o.b. value of imports. Imports of cotton cloth in 1948 from countries, which have devalued; were 45% above the 1938 figure but owing to the decline in U.S. demand for cotton textiles in  - 6 - general imports in the first six months of 1949 were at an annual rate only 5% above 1938. Prices for domestic manufactures declined appreciably in the first half of 1949 and devaluation probably only offsets this factor. Imports can not be expeoted to increase materially above the 1948 level, as a result of devaluation unless overall demand for cotton textiles in the United states recovers. (6) U.S. exports of cotton textiles, 94,000 metric tons, accounted for 22% of 'World exports in 1948 against 4.5% (31,600 tons), in 1938; U.s. exports of yarn, 12,700 tons, accounted for 10% of world exports in 1948 against 2% (4,500 tons), in 1938. The increased importance of U.S. exports post-war has been largely due to the inability of other exporters to satis... fy the demands of their former import markets. RecoverY of production, particularly in Europe, has already been reflected in a reduction of U.S. exports of textiles and yarns of 37% and 70%, respectively, between 1947 and 1948, although world consumption increased by 2%. Devaluation may be expected to accelerate this decline. Destinations of U.S. exports of cotton textiles in 1947 and 1948 were as follows: J.947 1948 Asia 360 312 Latin America 309 221 Africa 311 185 Canada 278 160 Europe 134 47 Oceania TOTAL - 78 1,470 ..l2 940 Source; U~S. Department of Commerce  ;,. 7 - (7) Canadian imports of raw cotton are almost entirely from the United States and Mexico and in 1948/49 totalled 350,000 bales compared with 253,000 bales in 1938/39. Devaluation is unlikely to affect the source of imports. (8) Canadian imports of textiles in 1948 were 19,800 metric tons against 9,200 tons in 1938; imports of yarn in 1948 were 4,300 tons; com- pared with 2,000 tons in 1938. Around half of the imports came from the U.K. pre-war, but only 18% came from U.K. in 1948, and 56% from the U.S. The reimposition of import duties on July 1; 1949 (ranging from 15% upwards of f.o,b. values) may be expected to reduce the total volume of imports but devaluation together with Imperial Preference should cause an increase in the amount and proportion nf rum-dol1ar imports. Following post-l.Jar re- stocking, Canadian oonsumption per head of cotton textiles has beglm to decline. B. Non...Dollar Markets (1) There has been a very strong demand by non-dollar importers for non-dollar cotton, which even without devaluation could have been ex~ pected to become stronger in 1949/50 owing to reduced ECA appropriations. The importance of the U.S. supply can be seen from the followIng figures:- vlorld TotalsvlessU .8.1 and Canada (million bales) Consum:etion Produe~i9s Differ~ 1938/39 23.4 i7.9 5.5 1948/49 -19.8 1a·.9 4~8 Decline 3.6 3.9 (2) ----- ---- Non-dollar importers appeared to be unwilling in early weeks following devaluation to take the same quantities of non-dollar raw cotton  -8- at pri·ces reflecting the full extent of the rise froin devaluation; parli- cularly as U.S. supplies under ECA appropriations at the time of devaluation remained unchanged. Owing, however, to the shortage 'Of non...dollar supplies, demand has proved sufficiently streng to clear the market at prices appre- 6iably above pre-devaluation levels. S~ot.Cotton Prices Karach! U;8.A. ~ Alexandria 4F Punjab Sao Paul" Middling Ending Ashms:ul.~ FsGsF:£ S.G. Fine , Tn e 2 l~Ll§?~ (US '(US CUS (US eta. {Tallaris eta .. (Rupees eta. (Cruseiros ets. per per per per per per per lb.) kantar) .. lb.) Maund) lb.) arroba) lb. ) September 17 40.43 48.50 30.80 84.0 33.89 206.0 29.67 September 24 3l~89 55.00 28.60 78.0 33.40 203.0 29.60 October 1 31.19 53.80 26.40 72.0 32.74 199.0 29.20 October 8 33.23 57.33 24.93 68,0 32.41 197.0 29.23 October 15 34.70 59.85 25.12 68.5 32.25 196.0 29.10 October 22 33.77 58.25 24.20 66.0 32.25 196.0 29 .. 18 October 29 34.38 59.30 24.57 67.0 32.08 195.0 29.18 November 5 36.08 62825 24~57 67.0 31.92 194.0 29.38 November 10 38.61 66.60 29 .. 33 80.0 31.92 194.0 29.35 November 17 40.90 70.55 28.23 77.0 31.92 194.0 29.13 SO'llrce: U.S. Department of Agriculture (3) Considerable changes have occurred compared with pre-war and since the end of 1947 in differentials between prices for U.S. cotton and other cottons. The heavy use in the U.K. in 1947 of Egyptian cotton as a substitute for U.S. cotton resulted in near exhaustion of U.K. stocks of Egyptian and panic buying in the spring of 1948; at a time when both France and the USSR were buying also, widened the differential very considerably. Dollar shortage among importers brought about a fairly continuot's narrowing of the differential in the case of Bradlian cotton. There was little change in the oas~ of Indian or Pakistan cotton except for a short period in the last quarter of 1948 when the differential widened for Pakistan as a resu c .'.  - 9- of domestic trading diffiCl.lltie.s. (See table of prices attached.) (4) A rise to the full extent of devaluation in non-dollar prices for raw cotton would probably result in an increase in non-dollar prices for cloth and manufactures of 10% to 20%. This would mean a competitive position, against dollar textiles, 20% to 30% better than pre-devaluation, and should accelerate the recapture of markets by non-dollar exporters which have devalued currencies, if supplies of non-dollar raw cotton are available. Although non-dollar raw cotton is in short supply, these tex- tile exporters will be in such an advantageous competitive position, vis- a-vis the U.S., that they may be able to export textiles, manufactured from dollar cotton, for dollars, particularly to Latin America. (5) Since before devaluation, non-dollar exporters were recovering their former markets, non-dollar prices fo~ textiles and manufactures may be increased to the full extent of devaluation. Dollar prices of textiles have been falling in 1949, but inspite of it, dollar exports of textiles have continued to decline. Non-dollar exports may be restricted, however, owing to the short supply of non-dollar cotton. In any case, total world exports are unlikely to reach pre-war in view of the growing competition from synthetic substitutes. (6) The position of Japanese exports of textiles, which in 1948 totalled only 40,000 metric ton::! compared with 325,000 tons in 1938, and of yarn, which in 1948 amounted to 5,400 tons against 19,500 in 1936, will be largely the result of policy decisions. Owing to very large pest-war dollar debts, Japan has recently been shifting the source of her raw cotton from the U.S. to non-dollar countries, and has recently concluded an agree- ment with the Sterling area, for the settlement of trade balances in dolla;r,~  -10 - her Sterling balance has been accumulating rapidly. Devaluation has off- set the downward adjustment of the yell in relation to the dollar made in April, 1949. C. Conclysion§ (1) Neither U.S. nor Canadian imports of rawootton can be ex- peoted to increase. (2) U.S •. exports of raw cotton can be expected to decline as a. result of reduced ECA appropriations. The decline may be less than if de~ valuation had not occurred by the possibility of inereas9d imports by non- dollar importers, in view of the possibility of sales of textiles for· dollars in areas other than U.S •. or Canada •. (3) Prices for U.S. cotton are now at their support level. The U.S. carry·over of cotton which increased from 3.0 to 5.3 million bales during 1948/49 is expected to reach 8.2 million bales by the end of July, 1950. With such increasing surpluses, prices for U.S. cotton dropped to only slightly above support levels in August, 1948 and in August 1, 1949, Middling l5/16's averaged 2 cents per pound above the equivalent loan rate of 29.57 cents, mainly because of a scarcity of IIfreell cotton (i.e. cotton outside C.C.C. holdings)" As \I free"cottonbecame more plentiful, prices declined to the loan rate. Hi th such ample .stocks expected at the end of the current ar.op year, U.. S.. domestic cotton pr1cesmay not be expeated to rise much above the loan rate during the seaSOll .• (4) Since Brazil and Pakistan whobave not devalued are with the U.S., the main exporters of medium 'staple oottons" the pressure of demand from non-dollar importers for no~dollareotton may beexpeoted to cause (a) non..-dollar no~devalued prieea(Braziland Pakistan) to recover to the  - 11- equivalent of the U.. S. support price level, and (b) non-dollar devalued prices (Egypt) to continue to riss possibly above their pre~devaluation level. (5) U.S. imports of cotton textilea are not likely to increas.e materially. (6) Canadian imports of cotton textiles Qan be expeoted to fall but the total volume from non-d,ollar sources can be expected to increase~ (7) U.S. exports of cotton textiles oan be expected to continue to fall, while non-dollar exports continue to rise. The rate at ""- " wbiOb", substitution can occur wiU be limited by the short supply of non-dollar ootton and the inability to rapidly increase output. The rise in non- dollar exports may be accelerated by the possibility of sales for dollars of manufactures from doUar raw ootton, particularly in Latin America.  .... 12 - Cotton Prices (U.S .. dollars per Ib .. ) . , Period . U=S:A~ Alexandria Sao Paulo B0.B!b~Z Karachi (Crop Year Average Ashmouni Type .Taril1a .4 F. pWjab • Beginning Middling F.G.F .. 5 Fine S.G. F'ine August 1) 15/16" . A-verage 1936 .1325 .1546 .1295 ;1008 JJ! " 1937 ~0909 .1096 .;0926 .. 0727 !}./ " 1938 ~0900 .0992 .0842 .-0657 JJ! 1948 Jan. .351; .4113 .2937 ~2009 Fep; ~3276 .4113 .2836 ~2227 Mar. ~3418 .6967 .2818 ~2314 Apr; .3722 ~6?96 .2930 ~2602 May ~3755 ~3056 .;2872 June .~3703 ~6046 .30?1 .2705 July ~3401 .5872 .3096 ~2547 Aug; ~3131 .4516 .3163 ~2216 .3144 Sept. .3118 .• 4214 .3109 .:2165 .2926 Oct~ ~3121 .3919 .3241 .2311 .2640 Nov~ .3149 .3605 .3390 .2353 .2677 Dec. .3217 .4340 .3363 ~2368 .2754 1949 Jan. ~3259 .4676 .3496 .2386 .• 2851 Feb~ , ~3255 .4231 ~3550 .2386 .3200 Har~ .3264 .3951 .3369 .2386 .3205 Apr. .3297 .3750 .3.373 ~2386 .3232 May .3285 .3741 ~3208 ~2386 .3190 June .3273 .3435 .3189 ~2386 .3168 July ~3209 .3524 ~3204 .2386 .3181 Aug. .3104 .3760 ~3217 .2,386 .3172 Sept. ~2998 .3722 ~3307 .2202 . .2963 Oct. .2961 .3402 ~3225 ~1646 .2471 !I Bombay, Qomra Fine. Source; U.S. Department of Agriculture.  - 13 - DIFF§RENTIALS BET~reEN EGYPTIAN, BP~ZILIAN\INDIAN, PAKISTAN AND U.S. Rf.vl COTTON tRICES 'Karachi IF"Punjab S.,G. Fine 0.4 6.2 15 •.4 15.0 14 .. 4 12.5 1.7 1.8 2.0 2.9 3 •.2 0.9 2.,2 1.2 16 •.5 Eoonomio Department Prepared by P.F. Craig-Martin M.F. Perkins APPE@IX I:n: , NOTES Or.I Jur:g; AND, JUT:g;, PRODUGl] I. GENERAL BACKGROUND 1. The world lecation of the jute production and of the processing in- dustries represents an interesting example of the international division of labor. 2. For all practical purposes world prQduotion of raw jute is limited to India and Pakistan in the region of the deltas of the Brahmaputra' and Ganges Rivers olose to Calcutta. The reasons for this are historical~ allm- atio and the availability of supplies of cheap labor. Production in recent years has been limited by the food shortage and adverse weather condiM.ons. The table below shows that Pakistan produces about three-quarters of the total crop. Production ofJ~teTjB India and Pakistaq (thousand metrio tons) Period I ~ Pakistan Total 1934/38 Av. •• •• 1,860 ~/ 1947/48 308 1,242 1,550 1948/49 368 994 1,362 1949/50 363 910-1,000 1,273-1,363 ~ Represents estimate of Indian Central Jute Committee; official el3timate is much lower than this: 1,480,000 metric, tons. ~?urce: Food and Agrioulture Organization 3. The largest proportion of the jute supply is prooessed in India at Calcutta. Exports of raw jute to other manufacturing centres (chiefly Europe and the United states) prior to Partition were shipped through the port of Calcutta. Since Partition and prior to Devaluation this system continued; the Pakistan Government has beeri attempting to divert its raw jute exports to non-Indian destinations through the per.t of Chittagong but inadequate  -2- facilities at present limit this movement to about one million bales (180,000 metric tons) per annum. The exports of raw jute from India and Pakistan are as follows: • from India and Pakistl!S E:tg?0tt§ ot Raw Jute (;thousgpg me~r1ct2ns) (million rttI!~es) Period ~/ Iota1 to U,S~A. ~ ~? \I,S.A. Ingie. !ind Pakisjran 1937/38 756.0 100.8 147.2 1938/39 701.5 32.6 98.2 1947/48 269.0 42.8 258.3 India Onll 1948/49 216.0 32.2 238.9 Paki§tan OnlZ 1948/49 1,030.0 ~/ 41.• 3 !/ Year April 1 - March 31. lv. Exports to India were 708,000 tons (3.9 million bales). Sf Unavailable. Source: U.S.• Department of Commerce Exports of raw jute have been declining since pre-war due to the smaller crop production. 4. Import data on raw jute include small quantities of similar fibres such as Congo jute. The chief importing areas and countries are the United Kingdom, continental Europe and the United States as shown in the table be~ low; (Preliminary) Importing A'f~a 1.934/38 1946 J$z1 ~ Un! ted Kingdom 166.7 75.2 65.0 95,1 Continental EurDpe incl. USSR 471.9 (169) 0.91) (205) United States 73.2 76,,5 41.9 75.8 South America 35.5 33.3 (25) (40) All other J6·1 _8 t 6 12 ...... Oit 0 !30t~} Total 783.4 362,,6 334.9 436.5 !I(next page)  - 3 - IJ./ Excludes Indian imports from Pakistan, Source: Food and Agriculture Organization 5. On the manufacturing side the influence of cheap labor is seen in the location of production of the cheaper jute products in Calcutta. The burlap and sacking so manufactured is exported, as cloth Or finished pro- dUcts, e.g. bags. The raw jute exported to centres in Europe (suoh as Dun- dee) and to the United states, is manufactured into the finer and more ex- pensive jute products by skilled labor which receives higher wages than in India. In some European countries this division of labor is modified by tariffs which proQibit the import of jute manufactures. The principal jute products exporting countries are India, the United Kingdom, Belgium and France. The principal importing countri~s are the United States, Argentina and the United Kingdom. Underdeveloped countries largely import jute pro- ducts in their final form, i.e. such as bags, whereas more industrially de- veloped countries import jute products in some intermediate form such as yarn or cloth and finish the processing domestically~ 6. India accounts for over 90% of the total jute products moving in international trade. Due to the steep rise in prices since the "Tar the value of Indian jute products has increased eonsiderab1y as camplred with pre-war although the total volume of exports remains somewhat smaller than pre-war as the table below shows: Exports of Jute Products21from India (th ..;"..lsandmet~ic tons) i (million rupees) Period !J!/ . 'rotlal To U§A Total To USA Cloth Bag,§ CloJ~h Bags ~ Bags ~ ~~ 1937/38 442.0 576.0 251.0 9.4 15).7 131.7 82.7 204 1938/39 417.0 555.0 221.0 5.5 1;3.4 76.7 67.0 l~J 1947/48 426.0 452.0 242.0 4.7 771.J 471.4 415.3 4.1 1948/49 440.0 478.0 225.0 2.3 805.2 614.2 37;.9 2.8 a/ Year April 1 ... March 31. if Burlap and sacking cloth and bags. SOUT2e; U.S. Department ot Commerce  -4- 6. The prime use of jute products is in the packaging trade. In this field jute produots h~ld their position by their cheapness as compared with substitutes (chiefly. cotton cloth and bags). During the war, trade dis- locations and shortages of jute supplies resulted in a substitution of multi.. wall paper bags for jute products in the United States and Canada though not in other parts of the world. Since the end of the war the sharp increase in the prices of jute produots and continuing shortage of supply resulted in the paper bag satisfying the sharp increase in demand for packaging materials in the United states as is shown in the table below: Untted States Consum~tien of Textile~ for Bags vs. Multi...wall Paper Bags - Year Burlap Cotton }1ulti-wa.ll Paper ~ (hundred million yards) Total 1939 712 816 3.30 1,858 1940 648 890 5.36 2,074 1947 8.31 714 )",614 3,159 1948 700 614 1,900 3,214 (Percent) 1939 38.3 43.9 17.8 100.0 1940 31.3 42.9 25.8 100,0 1947 26.3 22.6 51.1 100.0 1948 21.8 19.1 59 •.! 100.0 Source; Textile Bag ·Manufacturers Association The proportion of the market enjoyed by burlap has dropped from .38.3% in 1939 to 21.8% in 1948 while paper has increased from 17,,8% to 59.1% over the same period. Moreover, the continuing shortage of raw'jute has forced the prices of jute products up to the point where paper bags and, in some uses, cotton are cheaper in the United States and Canada. The table below illustrates this point after deducting an allowance for second-hand use:  - 5- U"s.. Costs of 100 pound F1QE:... Bags to :the First Ussr (dollars per thousand) (after allowing for second-hand sales prices) ~ Minus balsea rUtl!Y B~w Minus once-used £I Cotton Burlap· Paper Cotton Burlap 1940 54.05 54.09· 66.52 .... 1948 Oct. 133.00 140.85 104.. 05 98_00 1949 July 141.00 106.80 93.70 101.00 116.80 Oct. 144.75 121 .. 95 96.20 99.75 116.95 !?:! New prices minus second-hand prices reported in the Daily Ni1l stock Reporter. ]I New prices minus second-hand prices obtained from a large New York seoond-hand bag dealer who quotes relatively higher prices for seoond-hand cotton bags as compared with burlap bags and as compared with bakeries. Source: Southern Regional Research Laboratory It is evident, therefore, that in the post-war situation the advent of multi- wall pap~r bags on a large scale has altered the demand and supply position of packaging materials. On the demand side paper has introduced quality factors (by supplying various ty'pe~ of bags in accordance with the needs of ~ari6us types of packaging) into what WaS formerly a purely price market; and by requiring the installation of expensive pac~~ging machinery, which is not adaptable to the use of jute products, it has largely excluded the ~atter , from the market once the machinery is installed. On the supply side it has introduced a product which is more price competitive than other substitutes. Another unfavorable factor for all paCkaging materials is the increasing usage of bulk handling methods~ Insofar as the multi-wall paper bag has not invaded other markets than the United states and Canada, the character- istics of demand for jute packaging produots on eaoh type of market are now much less uniform than was the case before the war. Should themulti~wa11  - 6- paper bag invade these other markets, wrdch is possible, a situation similar to that in the United States and Canada could prevail. On the other hand, could the price of raw jute be lowe:!:'cd co)lsiderably it roightregain some of its lost markets or at least prevent further shrinkage. 7. A second factor affecting the position of India in the jute pro- ducts market has been the Partition of India and Pakistan into two separate countries. Pakistan is now desirous of establishing a jute processing in- dustry of its own and of developing the port of Cb1ttagong as an export out~ let. Furthermore, as a result of the political disturb~~oes between India and Pakistan, India is planning for the expa.~sion of its raw jute production so as to beoome relatively less dependent upon Pakistan as a source of supply. If carried out, such policies could result in an exoessive supply of raw jute and jute products with consequent low prices. 8. A third factor affecting the Indian position 1s the recent trend toward increased labor costs arising out of the unionization of the jute mil1st labor in Caloutta and social legislation. Such measures tend to weaken the competitive position of India. Any new mills built in Pakistan would be modern and recent rationali~at~on in Dundee has brought the equip- ment of the industry there to peak efficiency. This compares with the posi- tion in India where some jute processing equipment is at present out of date and badly in need of renovation. II" THE EFFECTS OF DID'ALUATION 1. During the spring and early summer growing season, prices of jute were deo1ining owing to the expectation of a large crop. ~. Adverse weather conditions were such that later crop estimates, prier to the devaluation da.te, indicated that jute would continue in short  - 7- supply; thus the market showed a firmj.ng tendency and prices rose. 3. The effects of the one week per month Sh'lt-dow1')s in Calcutta mills also served to strengthen the burlap market ae production and stocks de~ clined. Calcutta Mill Production of BRtlan and Stooks ; . , (million yards) Production Stocks (end of montht - Month 19!t~ 19,9 1948 1942 January 162 149 225 215 February 153 142 204 228 March 175 107 205 218 April 168 142 217 241 May 116 105 188 246 June 158 105 20~ 214 July 157 74 236 170 August 150 87 253 142 September 162 85 227 135 October 134 72 220 99 November 149 217 December 170 215 Source: Daily Mill stock Reporter 4. Under such circumstances, had Pakistan devalued along with India, the price of raw jute and jute products would have risen strongly in rupees and other devalued currencies due to the small prospect of substitution for such commodities as cotton textiles and hard fibres which are in equally short supply in soft currency areas. Prices in dollar areas would have de- elined somewhat and a relatively small increase in imports into these areas would have occurred at the expense of non-dollar markets. It i, unlikely that jute products prices would have risen by the same degree as for raw jute, as the percentage cost of jute prodUcts represented by the cost of the raw jute is only a part of the total (40 to 50%); hence import~ng countries with jute processing facilities would have had an incentive to import more raw  - 8 - jute and process it with local labor rather than pay India a price which would. allow a greater return than the increased cost of the raw jute. This would depend, however, on the extent to which India and Pakistan would permit more raw jute to be exported. 5. Raw , Jute. . Following devaluation (with Pakistan not devaluing), as raw jute .interests in Calcutta refused to purchase raw jute from Pakista.n at predevaluation levels, trade between the two countries ceased., Raw jute supplies for export were th~s restricted to what India would make available out of her own production and stocks and to quantities of Pakistan jute which could be exported from Chittagong. East Bengal jute merohants soon had sub- stantial stocks of raw jute which could not be sold and buying within Paki- stan has virtually ceased. A general fall of 20 to 25% in the producers' selling price occurred. In late October the Pakistan Government announced a minimum price of raw jute of jat bottoms quality at 23 Pakistani rupees per maund (8.4 u.s" cents per pound). This move was an attempt to assure an eoonomic return to the cultivators. The Government il,'l prepared to support a buying scheme to the extent of Rs. 150 million ($4.5 million). Inadequate storage accomodation is an immediate major difficulty. At the end of Sep- tember, ceiling prices were imposed by India on raw jute at Rs. 35 per maund (8.9 cents u.s. per pound) on loose jute for all bottoms (38 rupees on mill middles) with pucca bale prices to be determined on that basis. 6. With the cessation of trade with Pakistan and the impcsition of fixed prices in India at relatively low levels, the export of raw jUte de- clined considerably. By mid-November the Indian Government prohibited ex- ports from Calcutta except to the United States and Canada. This measure was taken to preserve supplies for the Indian mills while at the same time  - 9 - to preserve the prospect of earnings of much needed dollar exchange. Follo'W- ing devaluation, trading in Ney York came to a standstill. Offers from shippers were lacking. This situation has continued to date. Vir'l;ually no . offers are being received in New York from Pakistan while scarce Calcutta offerings principally involve India grades of jute which are not commonly used in the United States and the lots are ~all.· This is indicative that Calcutta Shippers are attempting to do business but have not th~ types from Pakistan they ordinarily export and, therefore, have substituted Indian supplies. Spinners are reported not too eager to buy even when opportunities present themselves. Prices of native first marks o.1.'f. forward shipment at New York are shown below: Quoted Prices Native First Marks - Forward Shipment I Ney York e.itf, Dypdee c ~ i., f ,.!/ .. - Date Sept. 1 - 10 (s~nts per pound) 15.00 - 16,00 -Date sept. 1 - 10 (f, per ton) (¢' per ph.) 86 15.45 Sept. 13 - 17 17.00 - 18.00 3ept. 13 - 17 86 15.45 Sept. 23 - 30 15.00 ..,. 16.00 Sept. 20 - 24 90 11.25 Oct. 1 - 31 14.00 - 15.00 Oct. 5 - 31 101 12;60 Nov. 1 - 18 14.00 - 15.00 Nov, 1 - 18 101 12.:60 y Quotations in Dundee reported to Ney York by cable. Source: Daily Mill Stock Reporter Although in the early part of September New York and Dundee prices were in line, they diverged considerably thereafter. This indicates that little trade was possible between New York and Dundee; in fact the New York market . ' over this period was largely nominalo Dundee quotations could well have been from stock as supplies there are reported to be adequate~ Throughout the period covered no spot prices have been quoted at Ney York; 7. Burlap. Following devaluation, Calcutta jute manufacturers announced a two week moratorium on sales. This p~t the market in a state of suspended  -10 - animation and shippers were almost. entirely out of the market. At the end of September the Indian Government, following a series of conferences with the IJMA, established ceilin~ prices on jute ,goods effective October 4 on the basis of Rs. 42 on 7.5 oz. - 40 inch, Ra. 55 per 100 yards for 10 oz. - 40 inch, and on heavy jute goods (sacking) at Rs. 1550 per ton.lI In ad- dition, the export tax was raised from Rs. 80 to Rs. 350 per ton. The duty is equivalent to approximately 1.5 oents per yard on 10 oz. - 40 inch burlap and 1.2 oents on 7.5 oz. , ~, , ;40 inch. The establishment of ceilings brought trading in New York to a complete standstill with not a single offer made from Calcutta. Buyers exhibited a desire to buy but no goods were offered. At the end of October the burlap supply position in New York continued to grow tighter and tighter. With a few exceptions Calcutta shippers refuse to make offers. Buyers a..'ld parti- cularly bag manufacturers, in some cases, were reported evincing distinct apprehension concerning forward supplies and seemed prepared to absorb any lots of burlap made available to them. Bag manufacturers in general are short of jute cloth wit~ stocks well below average. The price situation in New York since early September is shown below: New York Spot Burlap Price guotations and Equivalent guotations for Shipment from Cal~utta (U.S. cents per yard) / New York ,Q,alo'ttta ~ Spot in carload For forward !2!!:! lots ex dock Shipment 74t oz. Sept. 1 .. 10 13.92 17.42 13.49 17.14 Sept. 12 - 17 13.76 17.58 13.53 17.49 Sept. 21 ... 24 13.15 16.63 12.15 15.29 (contd) According to the Indian Government statement this is equivalent to a decline af 15% from pre-Qevaluaticn prices (hindustan Times, October 26, 1949).  - 11 - (continued from previous page) New York spot Bl~lap Price Quotations and Equivalent guotations for Shipment from Calcut!:! !};/ New Yor15 Calcutt~ Spot in carload For forward lots ex dock _Shipment 71t oz. 10 oz. ...--- - 71=: oz. 100q • Sept. 27 - 30 12.84 16.28 11.99 15.05 Oct. 1 - 11 13.25 16.75 12.81 16.26 Oct. 12 - 28 13.50 17.00 12.05 R/ 15.85 .:g/ Nov. 1 - 10 14.25 17.75 12.05 .:2/ 15.85 .9/ Nov. 10 - 15 15.00 18.50 12.05 .:s/ 15.85 :liI ~ Prior to Oct. 12 represents quotations for shipment, landed cost New York, duty paid. !V Represent Indian Government export ceilings plus 5% sales commission; landed cost New York, duty paid. Source: Daily Mill Stock Reporter Burlap prices in New York are now above pre~devaluation level~ and above established ceiling price equivalents in India. This is due, not to de- valuation itself, but to the repercussions following devaluation in India and the resultant reduction of shipments to New York. In other words pre- sent prices represent scarcity prices. Some trading with Calcutta is oc- curring but is largely of a black market character in evasion of Indian price ceilings. Meanwhile the continuing shortage of jute and jute pro- ducts is encouraging wholesale substitution for cotton textiles and paper bags. III", CONC1USIONS 1. The position of jute and jute products in world trade depends largely on their c~ee.pness in relation to substitutes. At the present time jute and jute products prices are considerably in excess of pre-war due to  - 12 "!" the scarcity of supply and higher costs of manufacture. 2. In the United States and Canada paper products, particularly the multi-wall paper bag have made considerable inroads on the market for jute and jute produets, particularly burlap. This has resulted in a permanent lOBS of some markets. Due to high levels of business activity} the demand for jute and jute prodUcts remains at pre-war levels. But the characteristics of the United States and Canadian demand for jute and jute products have changed and the market is much more competitive. If the jute industry is to recapture a part of its pre-war relative position on these markets a reduction in prices is essential. Such measures, however, are unlikely to increase the dollar earnings of India and Pakistan. 3. Elsewhere the paper industry has not made such inroads on the jute and jute products market and cotton, the next closest substitute, is in short supply. Thus the demand for jute and jute products is much stronger than in the United States and Canada. The potential threat of the introduction ot paper products on these markets, however, is a real one once shortages of pulp and paper are overcome. 4. Adverse ~eather conditions in the jute growing regions of India and Pakistan have e~ased the prospect of a larger jute crop and thus lower prices this season. Moreover, the disruption of trade between India and Pakistan, following on the latter's failure to devalue and the political and economic strife, which has continued since Partition, is hurting the jute trade im- measurably. In consequence, any advantage to be gained from devaluation has, at present, been lost: prices of jute and jute prodUcts in New York are now above pre-devaluation levels and trading has almost come to a standstill. 5. The consequences of this eoonomio warfare between India and Pakistan  - 13 - are grave. Both receive considerable revenue from the sale of jute a~d jute products including a considerable proportion of their dollar earnings, and their domestic economies are, insofar as the jute industrY is conoerned, interdependent. Indian jute mills at present are operating for only three weeks per month and have raw jute supplies for not more than four months. On the Pakistan side, the Port of Chittagong can handle only about 15% of the raw jute crop. storage facilities are entirely insufficient. Moreover, the Government would need to raise around Rs. 600 million if it should de- cide to purchase raw jute this year. Another danger is that if the peasants are unable to dispose of this year's crop, they will probably reduce the jute producing area. A continuation of this situation means running the risk of further permanent loss in the United states and Canadian jute products market plus the prospect of the use of substitutes spreading elsewhere.. From the point of view of the economic interests of the two countries an early settlement of their problem would appear extremely urgent. 6. If India and Pakistan solved their differences l the price of raw jute would again reflect normal market conditions. In view of the con- tinuing shortage of supply and the relatively strong demand, dollar prices of raw jute could only show a relatively small decline (around 5%), i.e. non- dollar prices of raw jute would rise by about 35%. Such a price movement would allow for a relatively greater decline in the dollar price of jute products because the processing costs outside the dollar area have fallen due to devaluation. Thus, with the fall of 5% in the dollar prices of raw jute, the dollar prices of jute products could fall by about 15%.  Economic Department Prepared by P.F. Craig~Martin APpENDIX IV M.F. Perkins NQI~~ ON RUBBER I. ~al Background 1. World stocks of natural rubber at the end of July, 1949, totalled 680,000 long tons compared with 870,000 long tons at the end of July 1948, and 707,500 long tons at the end of 1938. World stocks of synthetic rubber at the end of IvJay 1949, totalled 125,000 long tons compared with 100,000 long tons a year earlier and 77,500 long tons at the end of 1947. 2. World production, trade and consumption of. natural and synthetic rubber have been as follows: A. Natural Rubber (thousand long tons) Production ; Net Imports Net Exports Consumption 1938 1948 1938 1948 193§ 12k§ 1938 1948 Malaya 360 698 372 679 Ceylon 50 95 50 92 Netherlands East Indies 317 432 298 432 United States 406 729 437 627 Canada 26 43 25 42 United King- dom 132 187 107 194 other TOTAL - 183 295 910 1520 ~ 928 -.lli 1508 275 895 212 1458 386 955 _521 1420 B. S~nthetic Rubber (thousand long tons) Production Net Imports ~.ExE~ Q,gnsnmption United States - 1938 1248 1 488 1938 1948 11 193~ 12L& 121.§ 12.4.§ 4/~ Canada 41 .... 19 20 United King- dom ... 2 2 Other TOTAL ...i- ....1 6 532 -- ..lL 26 -- -19- ...i. 5 --12- 480 QRAND TarAJ.fo/ 916 2052 928 1534 895 1477 960 1900 y Natural plus synthetic. Sgurce; Rubber Statistical Bulletin  - 2 - Total production of all rubber in 1948, therefore, was at a higher level than total consumption whereas stocks (shown above) were declining. The discrepancy is largely accounted for by strategic stockpiling. 3. The demand for rubber is largely a function of the general level of business activity; the price of rubber, therefore, has practically very little effect on the amount con$umed. Similar conditions exist on the supply side for natural rubber as, for a large proportion of the total supply, the price of rubber has a moderate effect on the volume produced over a fairly long period. Thus the price tends to fluctuate considerably, being ex- tremely low during periods of adverse business conditions, and high during periods of active business conditions. Pre-war the lower limit of rubber prices was influenced by restrictive marketing schemes introduced by pro. ducing countries; since the war the existence of United States' synthetic rubber capaoity has tended to put a oei1ing on natural rubber prices, 4. During and since the war the United states market has been chara- cterized by: (1) A strong increase in demand for rubber due to a high level of business activity. (2) The development of a considerable capaoity in a new synthetic rubber indUstry. Major shifts in oonsumption of natural and synthetic have been as follows: U.S.Consum~tion of Rubber (thousand long tons) Natural Synthetig Reclaim Total Total . U1andatorx-) 1935/39 Average 528 142 670 1941 775 6 251 1032 1946 278 762 ... 275 1315 1947 563 560 288 1411 1948 627 442 (276) 261 1330 1949 (12 mo. 586 435 (272) 236 1257 ended July) Source; U~S. D~partment of Commerce  - 3 - u.s. oonsumption of both natural and synthetic deolined tn 1948 by 4% from the reoord 1947 level and in the twelve months ended July 1949, was at an annual rate of 10% below 1947, although 90% above the pre~war level. Accumulated post-war demand for rubber goods has now been satisfied and the U.S. rupber industry just prior to devaluat;ion was in the prooess of ad... justing itselt to new market conditions, with total consumption showing a dovntward trend. Since May 1948, the use by U.S, manufacturers of stated percentages of GR-S and Butyl in certain transportation produots has been mandatory. U.s. consumption of synthetic, however, was well above mandatory quantities during the twelve months ended July 1949, because prices for synthetic were lower than prices for natural during most of that period. Prices for synthetio to U.S. manufacturers have been 18.5 cents per lb. for GR-S and Butyl with other synthetics at higher prices. y~s. Rubber Prices (US cents per lb.) ~atural SYnthetic , New York No. ;1 RSS spot Price - GR-S 1934/38 average n.a. 15.12 1942 50.00 22.50 1947 18.50 20.97 July, 1948 18,50 24.28 June, 1949 18.50 16.36 September 16, 1949 18.50 18.75 Source: U.S. Department of Commerce The bulk of the voluntary use of synthetic was in the non-transportation products as follows:  -4- u.s. Consumption of Rubber 1948 19{;t8L49 Thousand Thousan<;l Long Tons Percent Long Tons Percent Irans~ortation Products Natural 443 33 400 32 Synthetic 302 23 .300 24 (mandatory) (276) (21) (272) (22) Reclaim Total ill 857 - 64 8 112 812 ....2 65 Non~Transpottation Products . Natural 184- 14 186 15 Synthetic 140 11 135 11 Reclaim ill 11 l24£- ....2 Total 473 36 445 35 ;too GRAND TOTAL Source: 1330 -1257 U.S. Department of Commerce !9~ The tire and tube industry in the United States uses the bulk of the lower priced synthetics; the rubber footwear industry uses the higher grades of natural rubber; other rubber goods industries use the higher priced synthetic and the bulk of the latex. About 55 to 60% of the total U.S. new rubber consumption is accounted for in the ~n~aoture of tires and tubes. Over the long-run, however, this proportion has tended to de- cline as the automotive industry reached maturity and the newer rubber in- dustriea WEre expanded. The distribution of the net value of the prod~cts of U.S. rubber goods manufacturers for 1947 shown in the table below reveals that, except in the case of tires and tubes, the cost of new rubber is a relatively small pro- portion of total oosts. The prices of most rubber goods, therefore, are very little affected by changes in the price of rubber.  - 5 - Percent Cost of new rubber Tires 23.6 & .- Tubes Rubber- , Footwear Qther 6.9 11.0 - Total 16.8 Cost of other materials 37.4 33.6 35 .. 3 34.2 Wages and Salaries 25.2 36.6 32.9 27.2 Other J.2·~· .22·2 20,8 21... 8 100.0 100.0 100.0 100 .. 0 ... SoWe : U.S. Depart~ent of Commerce u.s. exports of rubber goods in 1948 were valued at approximately $12~.OOO~000 which was 37% less than the 1947 value but four times the 1938/39 value. Tires and tubes accounted for 59% of the total value of 1948 rubber goods exports, the same proportion as in 1947. Howev~r, tire and tube exports declined in quantity approximately 50% from 1947 to 1948. Tire manufacturers in all countries outside the United states were inereas- 1n~ production and providing competition in export markets. 5. Canada's imports of natural rubber in 1948 were 43,000 long tons or 23% above 1947 and 65% aqove pre-war. The Canadian unit prices of finished rubber goods averaged 48% higher in 1947 than in 1939, compared with 73,5% in the United States. The Canadian rubber industry was able to get along with a smaller price rise than the United States industry owing to relatively smaller increases in costs of production, which improved Canada's competitive position on export markets. Exports of tires from Canada continued to increase in 1948 and were 13% above the 1947 level. 6, World consumption of natural and synthetic rubber, excluding the United States and Canada, has increased rapidly since the war. (thousand long tons) v'orld Consumption, excluding U.S, and Canada Matural Synthetic Total 1938 493 5 498 1946 267 1~1 388 1947 515 36 551 1948 751 17 766 1949 (12. months 839 15 854 ended July) S0!rpe~ U.s. Department of Commerce  - 6 - As a result of progress in rehabilitation of the rubber tire industry in Europe during 1948, the supply of tires appears adequate for European domestic demand. As well as supplying their domestic needs, many European countries are alsO shipping to their colonies. !n 1948, 67% of the Fren~h exports went to French Overseas Territories compared with 55% in 1947, and 47% of the United Kingdom exports went to Empire markets compared with 44% in 1947. Estimated Auto Tire Ex~or1§ Countr.z !l!lll Pre-war 1947 19M3 United States Number 962,000 4,026,010 1 1 796,490 Canada Number 719,222 602,793 679,278 United Kingdom Number 1,376,530 989,274 1,473,378 Belgium !J:/ Netric 5,271 2,621 3,110 Tons France J2I Metric 9,584 13,486 16,882 Tons a/ Includes tires of all kinds. ~I Includes tires and tubes of all kinds. 90urce: U.S. Department of Commerce II. The Effects of Devaluation 1. By the third quarter of 1948 the world supply of natu~al rubber was in excess of demand and natural rubber prices began to decline. After the beginning of 1949 world production declined while consumption increased and world stocks of natural rubber1/were greatly reduced until, by the mid- dIe of the year, the price of natural rubber started to recover, Prices prior to and since devaluation are as follows; --....... 11 Excluding strategic stOckpiles.  - 7 - Natural Rubber Prices ) (per pound) 1949 New York No. 1 RSS {US ets.) Ceylon No.1 RSS (Ceylon . cta t' } -- N.E.I. No.1 RSS !gyilder cta.per kg.) §,!ngapore No.1 RSS .(Str~~!.f4l Sept. 16 18.75 55.0 101.5 al 37.16 - 37.28 Sept. 23 17.00 16.62 66.0 127.0 if 41*">42 - 44.53 Sept. 30 65.0 n.a. 44.20 - 44.42- Oct. 7 16.25 66.75 n.a. 43.97 - 44.08 Oct. 14 16.25 66.0 n.a. 43 .. 97 - 44.20 Oct. 21 16.50 66.0 n.a. c:Losed Oct .. 28 16 .. 37 66.5 125.0 !!I 44.08 .. 44.20 Nov. 4 16.50 67.25 n.a. 44.75 - 44,87 Nov. 11 16.75 !t.1 n.a. n.a. 46.20 - 4,6.32 Nov. 17 16.75 n.a. n.a, 45.76 - 45.98 !I Quotations for August 29, September 26 and October Z8~ EllQuotation for October 11. . £I Quotation for November 10. n.a. Not yet available. Source: U.S. Department of Commerce Ceylon Embassy 2. Total consumption of new rubber in the United States may be e~­ peoted to continue below the 1948 level during the remainder of 1949 and may possibly show a further reduction in 1950. This is likely to be re- flected in an even more marked deo1ine in U.S. imports of natural rubber, in spite of lower prices. United states (thousand long tons) Spot Prices, Stocks, beginning Natural, N.Y. of period (avail- (cents per lb) able for industry) Consumption Beginning End I Natural §~th~tio . Natura]. SynthetAc Total 1948 July - Sept. 24.2 22.9 119.8 89.1 154.3 113.1 267.4 Oct. - Dec. 22.3 18.9 123 .. 9 98.2 148.3 109.6 257.9 !942 Jan .. - Mar. 19.2 19.1 141.5 115.2 149.6 110.1 259.7 Apr. - June 18.5 16.3 117.6 116.9 141.~1 108~6 249.7 July - Sept. 16.5 17.6 103.6 106.8 129.3 96.6 225.9 Source: U. S. Department of Co~~~e  - 8 - 3. Consumption of natural rubber in non-dollar areas should expand in 1950 as compared with 1949 and should be sufficient to offset U.S. declines; total world consumption in 1950 therefore should approximate 1949 levels. On the other hand supply is likely to cont:l.nue at 1949 levels or better, 4. Under these circumstances rubber prices in general should remain fairly firm. As demand is thus likely to be stronger in non-dollar than in dollar areas, non-dollar prices are likely to increase, as a result of devaluation, by 20-25% while dollar prices may deoline by 10-15%. 5. Non-dollar prices for rubber goodS may be expeoted to increase by 10% (under 5% reflecting increased rubber costs and 5% reflecting assl.uned wage increases) and at those levels would have a competitive advantage of 20-25% over dollar prices in export markets. Under these circumstances non-dollar prices could be advanced considerably or sales could be effected for dollars, particularly in Latin America. III. Qonclu§iona 1. The potential increase in rubber production in the immediate future is appreciable and over the long term is very considerable. Current non- dollar prices, 20-25% above pre-devaluation, probably provide an adequate return to most plantation producers, whereas at pre-devaluation prices, production was tending to decline. Restrictions on non-plantation produc- tion, which experts consider can produce at around half remunerative plan- tation prices, are likely to be maintained in most areas where plantations are established. However, elsewhere non-plantation production should in- crease with a potential downward pressure on prices. 2. U.S. demand for rubber will probably continue the pre-war upward trend, after downward readjustment f~om war and immediate post.war very  - 9 - high levels. U.S. demand for natural rubber will be determined largely by government policy regarding synthetic and technical advances reducing costs of synthetic production. A projection of long-term trends in consumption indicate that by early 1960's U.S. new rubber consumption will total about 1700 thousand long tons. If increases in both natural and synthetic are at the same rate, U.S. consumption of natural is likely to be 900 thousand tons or 400 thousand tons above the pre-war figure. 3. Similarly, consumption of rubber, mainly natural, in the rest of the world may reach 1750 thousand tons by the early 1960's or three and a half times the pre-war figure. 4. In spite of the probable increase in consumption, the probable re· duction in synthetic costs and the extremely low non-plantation costs may be expected to move prices for natural rubber downwards even though plan- tations costs are fairly rigid. The plantation industrY may be expected to provide a decreasing proportion of world supplies. 5. Under present circumstances, rubber has an inelastic supply while demand is related largely to levels of business activity rather than price. Upward movements in prices can be expected to be limited by the existence of a large synthetic production capacity. Downward movements in prices are likely to result in International restriction schemes. Co~equently, although appreciable fluctuations in rubber prices are to be expected they should be more limited than pre-war. 6. In the short-run, U.S. and Canadian consumption may be expected to decline as wartime backlogs have been largely worked off. In the non-dollar area this process has not been completed fully and consumption should i~ crease over 1949 levels. As a result of devaluation, therefore, dollar prices of rubber may be expected to decli~e 5-10%, initially, a 13% decline took place-, whereas non-dollar prices may rise 20-25%.  - 10- --, . CRUDE RUBBER PRICE QUOTATIONS - (No. l. RSS - US cents per pound) Date New York London Sin gap or;! 1934/38 average 1.5.12 13 • .57 12.84 1941 20.97 20.73 17.54 1948 January 21.82 22.04 19.85 February 20.42 21.41 18.81 March 20,33 20.20 18.43 April 22 .. 96 20.99 19.61 May 23.39 22.04 20 .. )2 June 22.80 23 • .51 21.20 July 24.28 24.72 22.40 August 23.63 22.51 21.32 September 22.93 22.04 20.69 October 22.15 21.83 20.27 November 20.52 19.69 17.94 December 18.86 19.06 16.97 Annual Average 22.01 21.67 19 0 82 1949 January 19.23 20 .. 41 17.39 February 16.49 19.32 16.18 1Iarch 19.08 19.01 17.33 April 18.53 18.32 16.83 May 17.92 17.96 16 3.5 0 June 16.36 17.17 15.14 July 16.45 17.85 15<;>67 August 16.60 17.75 16 . . 29 ::/PreYIaI' prices are for No. 1 RSS spot loose,; from 1947 onwards are buyers' mid-day prices for No.1 RSS f.o.b. in bales. Source: Rubber Statistical Bulletin. Economic Department APPENDIX.! Prepared by S. Lipkowitz NOTES ON NON-FERROUS ~ffiTALS The impact of devaluation on the dollar prices of the several non~ ferrous metals is likely to vary, depending in part on the importance of the dollar area as an importer or exporter of metals. In copper and zinc, the Western Hemisphere (which is roughly synonymous with the dollar area) is a net exporter by a substantial margin. In lead, production and con- sumption are quite closely balanced, but in tin the vJestern Hemisphere ia a sizeable net importer. The following tabulation indicates the importance of the l1estern Hemisphere as a producer and consumer of the metals in 1948. The trade balance was very similar to the production balance, except that stock- pile purchases by the United States were made in each of tho metals (which purchases are not included in our recl<ening of consumption); such pur- chases were greatest, relative to production, in tin. ltJe stern Hemisphere Producti~n ConsUIDRtion fer Cent Of World Total fer Cent of World To~al Copper 72.6 .$9,,'i Lead 62~7 6l~9 Zinc 64.5 55.2 Tin 25.0 50.0 Sterling prices for metals, both before and after devaluation, were closely linked to dollar export prices.. There were some variations in the timing of changes in the United Kingdom prices in relation to the United States prices because the United Kingdom Ministry of Supply, which is re~ sponaible for all imports into the United Kingdom of copper, lead, zinc, tin and aluminum; changed ita policies during the period. Until July 1, 1949, because purchase prices were based on the average price of the three  - 2 - months preceding arrival in the United Kingdom, adjustments of internal selling prices lagged beMnd the market in bO';~h directions. Since that date, the internal sellillg price has been adjusted to current fluctuatiotls with a lag of a day or so. Copper In 1948 the western Hemisphere exported more than 300,000 tons to the Eastern Hemisphere; imports from the United States, Canaua and CMle, by the United Kingdom alone, accounted for about 200,000 tons. Within the Western Hemisphere, Canada and Chile are the leading exporters, while thd United States is a net importer. Rhodesian copper is sold almost wh~llY to the United Kingdom except for small quantities shipped to Aust·ralia and ~outh Africa. Belgian Congo output is consumed largely in B~nelux and France. The bulk of Italian and German requirements have bee!l supplied from ltlestern Hemisphere sources. The average price for copper in 1948 was 22 cents per pound, reaching a high of 2Jt cents in the latter part of the year. Primarily b6cause of a decline in demand in the United States (de- liveries outside the United States have been well maintained) prices de- clined sharply to a low of 16 cents per pound in June. After same output curtaiL~ent in the Western Hemisphere, the price rose to 17-5/8 cents prior to devaluation and has, since devaluation, risen to l8t cents. The price decline in the spring of 1949 was followed by a curtailment of output in the United States (175,000 tons), Chile (120,000 tons), aLd Mexico (5,000 tons) combined, of about 300,000 tons per year. On the other hand, output in Rhodesia, Peru, Germany and Japan was increased over 1948 levels by about 150,000 tons annuallyo The curtailment of output in the United States and ~1exioo was due to the reduction in operations or oess- ation of marginal mines. In Chile the bulk of the reduction in outp-q,t was not because the price had fallen below costs, but because ~he leading pro- ducers (American controlled) felt they would be unable to. m$l'ket their full output except at drastica+ly lower prices. Bec~use of inconvertibility of currencies and Chile's inability. to undersell Canada, output restriction appeared to be a more feasible policy than continued full productionan~ the possibility of an even greater reduction in profits and probable in- ability to market the fUll output. Another consideration, undoubtedly, was the fact that further reductions in price would only encourage early legislative action for the reimposition of the American tariff" depriving Chile of its major market for copper. The increase in output in Rhodesia and in the other areas mentioned resulted from the overooming of transport, fuel, and other problems which had restrained output preViQusly ~- factors not directly related to cost-price margins. ~om the foregoing it is apparent that any improvement in demand could result in a substantial increase in output from Chile even at current prices, While an inc~ease,in prices of only 5-8% to a level of approximately 20 cents pe~ pound would probably result in resumption of operations at a number of marginal mines in the United States. In fact, there may be some increase even at the new ~gt cents price, if produoers are confident of its d~a­ tlon.ll In addition, two new mines have been bro~ght into operation ~n Canada this year which, when they reaahcapaaity operation, should increa~e Canadian output by at least 10%. These factors should tend to restrain further upward price movements,except where affected by strikes invol~ing ,. 11 Late in November, Anaconda announced the reopening of one mine in Montana, which had been inoperative since June. The Cal:umet and Hecla mine in Michtgan resumed operations in early fall, after ~ wage reduction.  -4- a large proportion of world output or abnormally increased demands due to such factors as increases in the rate of stockpiling. On the other hand, there are a number of factors which may tend to depress prices. Imports of copper into the United States are at present duty free, but a 2 cents per pound tax on copper imports becomes effective on July 1, 1950, in the absence of any new legislation. If and when this tax comes into effect the net impact may well be a reduction in the prices received by foreign sellers of I - It cents per pound, sinoe an increase iu the United States price by the full amount of the import tax would tend to increase domestic production substantially and create within a few months a surplus supply with a depressing effect on prices. Consequently, the impact of the reimposition of the import tax will be to shift the bur- den to foreign sellers -- largely Canada and Chile. The sterling price following the reimposition of the tariff will likely fall in proportion to the fall in dollar price reoeived by sellers of foreign-produced copper. Inasmuch as most of the Canadian output is either a co.,.product of nickel, or produced at very low cost because of the presence of other valuable co ...producta such as gold, silver and zinc, any shrinkage in the market for imported copper is likely to be felt largely by Chilean pro- ducers. Furthermore, it should be noted that the demand for copper is not highly sensitive to price changes, except in a few areas where aluminum has already captured certain markets from copper in the past decade, mar- kets which are not likely to be regained for cost and exchange reasons. On the other hand, while there has been a limited tendency to substitute copper for lead in constructional uses in Europe, the exchange problem for European countries is greater in copper than in lead.  - 5 - As a result of devaluation, production costs (in dollars) have been reduced in Rhodesia and to a much lesser extent in Canada and the 3elgian Congo. On the other hand, major copper producers in Chile have not bene- fited from past devaluations and owing to Chilean laws on conversion of dollars to pesos by copper companies are unlikely to do so in the event of further devaluation, unless the policy is changed, which is unlikely unless copper prices decline quite substantially. In the thirties, when demand was low, the major foreign copper pro- ducers operated a production restriction agreement which effectively shared the market among the leading producers, notably Chile, Northern Rhodesia and the Belgian Congo. It is quite unlikely that, so long as the United Kingdom is receiving substantial ECA assistance, an effective production restriction agreement can be made and enforced, since production res'tric ... tions on Rhodesian copper would only add to the dollar requirements of the United Kingdom. It is perhaps more likely that the British Government may encourage an expansion of sterling area copper output, primarily for the purpose of reducing dollar payments. The same situation applies with re- spect to Belgium and the Belgian Congo, modified perhaps by Belgium1s more fortunate excharige position and her-net export position. Copper prices in dollars are stable. Non~dollar prioes have been in. creased to reflect deValuation. If and when the American tartff is re- imposed, the price in sterling is likely to fall 5-8%, reflecting the net impact of 1 - It cents per pound on foreign sellers. The price may over the next few years fall somewhat further, but a foreign copper price below 15 cents per pound is unlikely unless there is a decline in world demand of 10% or more from current levels.  - 6 ... ~ Western Hemisphere supplies of lead were in close balance with con- are sumption for 1948 and they/probably similarly balanced at somewhat lower in 1949 levels of output and demanq(. There is, however, a substantial inter- continental trade, between Canada and the United Kingdom, and between some continental countries (e.g. Germany, Italy and Yugoslavia) and the United States. Some l>1exican lead was also shipped to Europe. Lead prices declined sharply from a high of 21t cents per pound, early in 1949, to a low of 12 cents per pound by June. Prices then rose to 15-1/8 cents per pound prior to devaluation. This increase was due to two factors-- the reimposition of the United States tariff of 1-1/16 cents per pound, effected July 1, 1949, and the strike in the Australian coal mines which affected Australian lead output. Since devaluation, the United States price has declined to 12 cents per pound, which taking account of the tariff, is a lower realization for foreign sellers than the June price, The decline in price since devaluation reflects the settlement of the Australian strike and the pressure of offerings in the United States from Germany, Japan and Yugoslavia. The sterling price has closely paralleled the dollar price. The sharp decline in lead prices resulted largely in a reduction in profit margins and has had little effect on output except in the United States. At present prices, lead mining is still quite profitable in the leading producing areas outside of the United States. There is every indi- ca~ion that further increases in output can be expeoted in M9rocco and Yugo- slavia as long as prices stay above 10 cents per pound. In addition, Bur. mese output may be resumed when more stable politi,cal conditions warrant.  ... 7 - It is unlikely, .therefore, that the dollar price will rise appreciably in the near future. Demand for lead is relatively inelastic in terms of price, but consumption in Europe, which has been restricted by supply shor- tages and lack of .foreign exchange, is likely to increase as non-dollar supplies become increasingly available. The recent decline in prices since devaluation is only indirectly attributable to devaluation and is due to the resumption of operations in Australia and the pressure of offerings of lead in the United States by Germany, Japan and Yugoslavia, events not closely ~elated to devaluation. Given the close balance between Western Hemisphere production and con- sumption, increased imports from Yugoslavia or other Eastern Hemisphere sources are feasible only when prices are reduced, thereby rendering some We~tern Hemisphere production unprofitable. Furthermore, price reductions may have to be even more substantial if Eastern Hemisphere lead is to per- manently displace some Hestern Hemisphere supplies. The impact of such price competition is likely to fall most heavily on the United States and Mexican producers, since the sole Canadian producer can operate at a profit even at much lower prices for lead and zinc. The immediate effect of devaluation was to raise the sterling price of lead by the full extent of devaluation; although the sterling price has since declined in harmony with declines in United States prices. ~ino Zinc prices tend to fluctuate somewhat more widely than copper or lead because zinc is frequently produced as a co-product of +ead and is much the less valuable mineral at the mine, pound for pound. Furthermore, because there are wide differences in the smelting techniques, and a greater number  - 8 - of zinc metal producers, the feasibility of cartelization and output re- striction is more limited than in copper or lead. In addition, zinc is probably more susceptible to substitution by other metals, especially aluminum, than either copper or lead. The 1,lestern Hemisphere had an export surplus of about 200,000 tons of zinc in 1948, of which the United Kingdom imports of zinc metal alone ac- counted for about 150,000 tons. The larger exports from the Hestern Hemi- sphere in zinc than in lead are due to the fact that Australia and the United Kingdom combined have a smaller capacity for refining of zinc than of lead. Excess Australian zinc concentrates are exported to the united States and Belgium. Europe's import requirements in zinc are are supplied by Australia, Belgian Congo, Newfoundland and Latin America~ Metal imports are largely from Canada and the United States. United States zinc prices declined early this year from a high of 17t cents per pound to 9 cents per pound in June, rising thereafter to 10 cents shortly before devaluation. Since devaluation, this price has declined to 9t cents per pound and then returned to 9-3/4-10 cents per pound; these fluctuations were due mainly to the steel strike in the United States which adversely affected the demand for zinc for galvanizing (accounting for al- most half the United States zinc consumption). The price declines this spring did not appreciably affect world output except in the United States where the important Tri-State district U:W1sas, Missouri, and Oklahoma), which accounted for 17% of the United States out- put in 1948, produces little lead and no silver. World zinc mine output ts likely to cont~nue to increase, particularly in Canada, Australia, Yugo- slavia and perhaps Burma. In addition, the completion of zinc-fuming plants  - 9 - (which recover zinc from lead smelter residues) in the United States, Canada and Australia should also augment zinc production. All of these factors are likely to operate to depress zinc prices over the next few years inasmuch as zinc consumption is unlikely to rise as rapidly as output, especially if zincts competitive position, vis-a-vis other metals, notably aluminum does not improve. Because of strikes in the United States and Australia, this price impact on zinc prices may be de- layed, but the longer range tendency appears quite clear. As in the case of copper, devaluation by improving profit margins of non-dollar area pro- ducers is likely to accentuate the expansion of non-dollar area output and the already evident tendency for zinc prices to decline o The immediate impact of devaluation was to leave dollar prices about unchanged (except during the United States steel strike interlude), while sterling prices were changed proportionately to reflect devaluation. Tin The position of tin differs markedly from that of other non-ferrous metals discussed above. The Western Hemisphere is heavily dependent on imports from the Eastern Hemisphere. Bolivia is the only important tin producer in the Western Hemisphere, but even if all Bolivian tin concen- trates were shipped to the Hestern Hemisphere (in fact about half, the Patino mine outpu~is shipped to the United Kingdom) they would account for less than 60% of the consumption requirement3 of the tJestern Hemisphere. The United States imported in 1948 about 25,000 tons more in the form of concentrates and metal than were consumed, which surplus amounts were transferred to the permanent stockpile. world output of tin in 1948 (153,500 long tons) exceeded consumption (138,000 long tons) by somewhat  ... 10 ... less than the amount stockpiled •.. Since the beginning of 1948, monthly production has been in excess of consumption; output is 11ke1y·to exce~d consumption by about 30,000 tons in 1949. Furthermore, the production potential Qf presently equipped mines is estimated at about 200,000 tons per year at present prices, as compared with ourrent oons1.llnption of about 140,000 tons. Earlier oonsumption e8:;i- mates by the International Tin study Group, at world full employment, of 190,000 long tons are now conceded to be over-optimistic; the freeing of tin from consumptio.n restriotions in the United states and elsewhere may raise world consumption to 150-160,000 tons in the next few years. The price behavior of tin since the end of the war also has been dif- ferent from that of the other non-ferrous metals.. Prioe changes upward were less frequent than in the other non-ferrous metals" primarily because tin supplies were and are still under world governmental allocation" and purohasing was handled by annual or biennial commit.ments of the United statea and the United Kingdom government agencies to producers in Malaya, Nige~ia and Bolivia, Prices paid to other producers were in line with those paid under the longer term oommitments. Thus when the other non~ ferreus metals declined between 30 and 50% in price last spring there were no ohanges in the price of tin, because of longer term Qommitments at fixed prices. Prior to devaluation the price of tin in the United States market was :$1.03 per pound. Shortly after devaluation the British Government, after consultation with Belgian and Dutch producers, posted a new selling price in sterling which had the effect of reducing the price to 95cenlls per pound in New York·. The selling price in London was raised from ~569 to ~750t an increase of 32% as 'against a theoretical 43%, if the dollar  - 11 - price had remained unchanged. The buying price in Malaya has been closaly related to the Ministry's selling prices, allowing for handling charges, et cetera. Since devaluation, a contingent s6ttlement of 80% of the Ministry's buying price based on a ~750 selling price was to be paid im- mediately to producers, the remainder to depend on prices actually realized by the Ninistry on tin purchased since devaluation. There we.s implic:lli in this arrangement a belief that tin prices Would decline further. Because of governmental controls, tin prices have not reacted to supply and demand changes promptly. This situation is, however, likely tv change in the near future. The United State s Gover~ent contract wi th Bolivian producers expires at the end of 1949. The Brit5.sh Govel~nment has announced the re-opening of the London Hetal Exchange on Novamber 15, thereby affording a freer market for tin. It is likely -that future 'United States purchases of concentrates and tin metal will be based, at least in part, on London Hetal Exchange prices. Because world supply has been and is outrunning world consumption and markets are being made freer, the dollar price of tin is very likely to fall further. Moreover, because the ~750 price for tin affords very large profit margins for producers in the Far East and Africa, and because the demand for tin is highly inelastic in terms of price, the price decl:i.ne oould be extramely sharp unless counteractions are taken by governments concerned. It should be particularly noted that the United State~ Govern- ment will undoubtedly continue to make stockpile purchases of tin, although the growing accumulations may make the United States authorities more in- clined to seek price reductions than in the past few years. On the other hand, because Bolivia is the marginal producer and the only Western Heroi-  - 12 - sphere source, some efforts to temper the effects of a sharp price decline on the Bolivian economY are to be expected; on political, if not eoonomic grounds. The precise nature of the measures to be taken in this respect is not known and probably ha~ not been fully agreed upon as yet by the uniied states authorities. It is likely; however, that as a result of the United states-United Kingdom talks in September; the United states Government will make appreciable stockpile purchases of tin, including a substantial pro~ portion of the United Kingdom Government stocks. Such a move would diminish marketable supplies which could be a market depressing influence and would increase the likelihood of prices being maintained at a price more favor- able to the producers. A minor price supporting factor, when world allo~ cation is abandoned, would be probable purchases of tin by the USSR, which has been effectively denied access to tin up to the present. A decline in New York tin prices of perhaps 25% from the psak to about 80 cents per pound (~640)l/would appear necessary to bring tin prices into line with the prices of other non-ferrous metals (see Appendix III). Any decline to this level should not be construed as being caused directly by devaluation, but merely as an adjustment of tin prices to those of other non-ferrous metals whose prices fell in the spring of 1949, which decline would have occurred in any event when the tin market was freed from govern- mental controls. Devaluation, however, bas undoubtedly had the effect of accelerating the move to free tbe tin market, and of greatly impairing tbe competitive position of Bolivia so long as an effective devaluation in Bolivia wbichwould reduce the costs of Bolivian tin producers, in terms of dollars, does not occur. It should be noted that all the major tin Ji The London spot price on November 29 was ~624, while the New York price (nominal) was 85 cents.  - 13 ... producing areas, Qxcep~ Bolivia, have experienced some degree of devalua- tion.. The impact of devaluation on tin produoing eoonomies is therefore likely to be one of ~ushioning the effects of an inevitable decline in dollar prices; except in· Bolivia. Even if the price dropped to 80 cents per pound in New York, the price in Malayan and Indonesian currency would be 10% higher than before devaluation and somewhat lower in Siamese and Belgian currenoy. However, in Bolivia the effect on the economy will be highly adverse. The value of tin exports which represents over 75% of Bolivia's total exports will be substantially reduced in dollar terms, due to price changes. Governmental revenues, largely based on tin export taxes, will also decline sharply, since export taxes are based on tin prices (about 20% of value). Hhether Bolivian output of tin declines and to what extent will depend on the extent of the United States stockpile purchases and the production quota which Bolivia may negotiate under a tin production restriction agreement. Bolivia's bargaining power in this re~ spect is limited and it is likely, therefore, that Bolivia1s output will decline substantially below 1948/49 levels over the next few years. Host of' the Far Eastern producers, f1alay~, Indonesia and Siam, have a potential output far in excess of 1948/49 levels and are unlikely to agree to limit- ing their output to their current proportions of world output, especially since tbeir relative cost position is also more favorable. Study Group Tin producing countries through the International Tin ... have been working for at least a year on the preparation pf a plan for tin t' .' output restriction acceptable to the leading consuming country -- the United states. Such an agreement, if sucoessfully consummated, wil~ undoubtedly tend to temper the impaot of surP1.ilS supplies on tin pr!cesand thereby on the economie~ . ,;,', -; of the PToduoing areas, While the UniteqStates , . stock~ piling purchases may del~ this impact for a further short period, it should be noted that the United states will, by the end of 1949, have approximately as· much tin ~n stock in the United states. as at the time of Pearl Hl;U'bpr, (140~OOO long tQns or 2 years' consumption). It is quite unlikely that the United states will contin'lte to add to its stocks at a rate of 2~;OOO ,'. or more tons per . year much beyond 1950. . .- ' To summarf~' tin: prices in sterling ~re increased 32% after devalua- tion, but the price has now fEt11en (Novem~r 29) to a level only 10% above the pre-:.~evaluation sterling pric,e ~ After. the initial readjustments' of a transition from a governmentally controlled market to a relatively free market, the pr~ce of tin is likely to be relatively uniform as between pro- ducers and markets. Niokel In nickel, Canada is the largest exporter. Since Canada pt"oduces about 80% of the world's nickel and is responsible for over 90% of the foreign t.rade, its near-monopoly. position, emphasized by the fact that a single firm accQ\Ults for over 90% of, Canada's nickel output, affords an interesting example of the limited effects of devaluation in such cases. The price to the United States in United States currenoy (40 cents per pound) remained unchanged. The price in the United Kingdom (and presumably in other Euro- pean markets) was increased in loo~ currenoy in inverse prGportion to de- valuation. l.Jbile its few competit()~swill gain some benef! ts from devalua- tion, they are equally unlikely to reduce prices because their capacity is limited and their competitive position none too robust. The otber Canadian  - 15 - producer refines its raw product in Norway~ while there is also a small production in New Caledonia refined in France, which is presently iri- sufficient for France's total consumption. The only serious threat to the Canadian monopoly rests with the USSR (which added the Petsamo mines in pre-war Flnlat1d to its own pre-war mines). But the Russian export capacity is believed limited and it should be noted that the Petsamo mines were acquired from the leading Canadian firm, which is well aware of Petsamots potential. other known nickel properties (not now in operatiQn) in Cuba and Indo~ nesia are not likely to prove strong competitors, if and when production is resumed. Aluminum , In aluminum, while Canada is the largest exporter, its proportion of world output (24% in 1946) is smaller, and scrap is more plentiful and com- petitive. The United states which accounts for 40% of world output imported more than 10% of its requirements in 1948. In Europe, the United Kingdom is the largest importer, France is self-sufficient and Norway is a substantial exporter. Canada supplies the bulk of the impnrt requirements of the Un! ted Kingdom and other European countries. Canada's competitors (like Norway) have improved their position by a greater degree of devaluation. This situation is tempered by the fact that the sole Canadian producer operates one of the Norwegian plants, has inter- ests in other foreign plants and has strong ties with the largest United states producer. After devaluation, the export price in Canadian currency (15.5 cents) remained unchanged, a reduction of 9~1/11% in terms of United States  -16- currency, but there has been no change in the domestic Unit,ed States price (17 cents per pound).. This was partly due to the fact that Can,ada I s com- petitors would gain a larger benefit from devaluation and because the United Kingdom, the ,largest maI.'ket for ,Canadian aluminum, had eliJ:n+nated the duty on Norwegian aluminum, eliminating the preferential treatment pre M viously accorded Canadian aluminum. In the case of aluminum, it should be noted that 'Oosts,at'e unlikely to rise appreciably in local currency in producing countries. The major elements of cost are (a) bauxite (imported from British Guiana, the Gold Coast or France, all of which have devalued,) (b) lapor, which is not likely to rise appreeiably, and (c) el.ectric power, which is almost wholly hydro power, where costs in the nature of the case are unlikely to change appreciably. The main exceptions are in the United States where bauxite is imported from Surinam (which has not devalued) or produced internally and where power is frequently from fuel sources. Thus devaluaM.on, by a re- duction in the costs of competitors outside the United States, may tend to increase imports of aluminum into the United States unless United States prices are also reduced. A cheapening of United States aluminum prices, especially after the immediate effects of the recent steel strike are over- come, is a distinct possibility, although foreign sellers may not press their advantage too strongly, fearful of a request for increased duties or the imposition of quotas by domestio producers (particularly the Kaiser and Reynolds interests which have 1n the past been befriended by the p~" sent Administration).. If United Sj,flte~ aluminum prices decline, its COfl.. petitive position vis~a-vla other non~ferrc~s metals will ~prove and per- haps increase the tendency to substitute aluminum for other metals, es-  - 17 .... pecially zinc. Other Hetals Dollar prices of cbromite and tungsten ores have fallen since devalua- tion, tungsten byo.ver20% and chr.omite by 4 to 20%, with the larger drop in lower grade chromite ores. In the case of tungsten, developments in China undoubtedly ha,ve affected dollar prices, but it should also be noted that less than 25% of the worldts production is in the dollar area, which is similar to the supply position ~f tin. Bolivia, Brazil, China and other Far Eastern areas are. the leadi~g exporters, with consumption limited to the major industrial nations, the Uni ted States and i~estern Europe. In chrome, the Western Hemisphere is greatly deficient, the only appreoiable source of supply being Cuba, whose output is largely (If the refra~ory type. The leading producers and exporters in the Eastern Hemi- sphere are the USSR, Turkey, Yugoslavia, the Union of South Africa, So~thern . Rhodesia, the Philippine :l;elands and New Caledonia. None of these areas, except the USSR, use any appreciable quantities, so that naturally their whole output is exported to the United States and Western Europe. Because world supplies were greatly in excess of consumption in 1948/49, the United States stockpile purchases muat have been quite substantial, since United states imports in 1948 were 76%, or 667,000 tons, in excess of reported consumption. Large stocks of chromite in South Africa and Southern Rhodesia, which had accumulated for lack of adequate transport in the post-war years. were being shipped out in much greater volume in 1949. It is likely that the combination of (1) surplus 9urrent production, (2) the improvement in transport ~n Southern Africa,~d (3) the perhaps somewhat diminished  - 18 - interest in stockpile purchases have accounted for the recent decline in prices. It should, howeve~t be noted that African chrome producers will gain substantial windfall profits in sterling on accumulated stocks of chromite (of over 500,000 tons, a year's output) even at somewhat reduced dollar prices. There has been no indication ot a~ reduction in manganese ore prices in dollars since devaluation. Since manganese is produced mainly in the USSR, the sterling area (Gold Coast, India and South Africa) and Brazil, the situation is similar to chrome, except that m~~ganese stockpiles in the United States are probably less adequate than those of chromite, and that the USSR is a far more important world supplier of manganese than of chromite. It is theretorelikely that the price of manganese will not ease quite so rapidly as did that of chromite, but the longer-run tendency is similar. If the USSR were to resume large scale shipments to the United States, a price deoline might occur more rapidly. Conclusions The impact of devaluation on metal prioes (in dollars) is greater the larger the proportion of world output exported to the dollar area. Hhere the non-dollar area is a net importer from the dollar area 1 the effeots of devaluation on dollar prices have been quite limited, Sterling and other non-dollar prices have been adjusted promptly to reflect devaluation and dollar prices. Other factors peculiar to specific metals, stockpiling, tariff changes and changes in production or consumption technology, will have import~it effects on price movements, frequently outweighing the impact of devaluation,  - 19 - per se. However, devaluation, as in the case of tin and chromi te, has had the effect of accelerating price developents which were likely to occur in any event.  - 20 - Uni ~~d Kingdom's tlUlPottaoo,e in. Non-Ferrous Met§,J,s gohsump ion and Trade The United Kingdom is the largest net importer of non-ferrous metals in the world for current oonsumption and is peculiarly dependent on im- ports. It produces no copper or zinc are and less than 5% of ttslead and tin requirements. The following tables indioate the sources of supply ~r U.K. imports. Over 50% of the copper and lead imports are from the sterling area, but less than 50% of tin and zinc. However, in tin, other prcducers in the sterling area, notably Malaya, are large net exporters, so that in tin alone cf the major non-ferrous metals is the sterling area a net exporter to the dollar area. The requirements of other parts of the sterling area in copper, lead, zinc and tin are supplied largely from within the ster- ling area. Canada, and, to a lesser extent, the United States, are the largest non-sterling area suppliers of copper, lead and zinc. Only Chile and Bolivia of the under.developed countries outside the sterling area are important suppliers of metals (copper and tin respectively).  .,. 21 - yltttEn IS1NQPCM IropbtiH!.ot, Copper l!1i& Quantity Percent of Country of Origin (rooo Long TOD$) Total --------__ ~----------~'~.~_.E~' ------______________-----______ §terling Area !/ Northern Rhodesia 157 44 ,Qther Canada 56 16 :6elgium 24 7 Belgian Congo 16 4 Chile 33 9 United states 58 16 Others 13 4 Total , 357 100 +- F ~ Part of the United States and Belgiane:cports are the re- sult of refining of Rhodesian blister for reshipment to the United Kingdom. The remaining Rhodesian supply was shipped to Australia and South Africa. The sterling area thus supplied over 50% of the United Kingdom imports of copper. Source: Bulletin. The British Bureau of Non-Ferrous Ivietal Statistics, August 1949.  ... 2~ ... UNITED KINGDOIvI Imports of Leag . l2i& ----------------------~------~~--------~j------.~------- Quantity Percent of Country of Origin (tooo Long Tons) Total ~terling Area Australia 97 60 Northern Rhodesia _.J: .k2 Sub-Total 101 62.5 Qth~r United States 8 5 Canada 4.3 27 Latin America 4 2.5 Belgium .3 4 Others Sub-Total 2 60 - 1 37.5 TOTAL - 4 161 100 ~ource:; Bulletin. The British Bureau of Non-Ferrous Netal Statistics, August 1949.  ... 23 - UNITED KIT~GDOH Quan'Gity Percent of Country of Origin ('000 Long Tons) Total Sterling .Area Australia 93 38 Northern Rhodesia 7 3 Norway -- ... 7 ..2 Sub-Total 107 44 Qthe;r Canada and Newfoundland 56 23 United States 59 24 Belgium 12 ; Spain 4 2 Poland 1 Others -1 :3 ........ Sub-Total 139 57 TOTAL 246 100 I21 , ; .- ~ Zinc content of metal and concentrates. ~I Inaccuracy due to rounding. Source: Bulletin. The British Bureau of Non-Ferrous [-letal Statistics, August 1949.  - 24- UNITED KINGDC{M Imports of Tin ~ 1948 Quantity Percent of Country of Origin (Long Tons) Total ----------------------------~--------------------.------------ S~~r1ing Area Nigeria 9,204 32 Other British Africa " ,252 ...1 Sub-Total 9,456 33 ,Qther. Bolivia 17,772 62 Portugal 324 1 Others 1t 22 4 .J.t Sub-Total 19,320 67 TOTAL 28,776 100 q 44 ; ~ Tin content in ores and concentrates. ~ource: Bulletin. The British Bureau of Non-Ferrous Metal Statistics, August 1949.  - 25 - APPENDIX II The attached tables show trade in copper~ lead, zinc and tin for the major producing and consuming countries, acco~~ting for about 95% of the world total. Since breakdowns of import and export data are not available for copper, lead and zinc for 1948, apparent trade has been derived from information on production and consumpt10n in the countries concerned. In the case of tin, trade statistics exist in great detail, and it has been found feasible to present data showing areas of origin and destination. Because the data for the United Kingdom in this Appendix have been compiled from different sources, the apparent trade figures vary slightly from those shown in Appendix I.  - 26 ~ COPPER 1948 (In '000 short tons) , Produotion Production Consumption Apparent Apparent of of at are Metal Country Ore Metal Neta1 Imports (-)Imports (-) Exports (,)Exports (f) !estern Hemisphere t,676.0 1.6~2!8 #nhl - 16.8 = - 31j7~ = .. United States 855.2 940.8 1,210.0 ... 85.6 ... 269.2 Canada 246.5 412.3 107.4 34,2 104.9 Mexico 63.9 57.3 8.0 6.6 49.3 Chile 490.5 468.3 10,0 22.2 458.3 Peru 19.9 14.1 5.8 14.1 ~astern Hemisphere 619!~ 677 .. 9 m;;p-:=; 9~V5.0 ~ - 58.6 ;..JQ1d Europe 124.5 180.2 940.0 =-55,7 =752..- 8 United Kingdom 399 .. 6 - 399.6 Belgium France 59.9 99.5 - 59.9 ... 99.5 Finland 25.7 20.4 5.0 5.3 15~4 itlest Germany .4 68~6 68.5 - 68.2 .1 Norway 15.8 9.6 9 .. 6 6.. 2 Sweden Yugoslavia 18.0 39.6 17.0 39.6 50.9 22.0 1 .. 0 - 33.9 17.6 Others 25.0 25.0 225.0 !il ... - :200.0 - Asia !{l:.!1 ,29.9 12.& - 10.0 24.9 Cyprus 21.5 21.5 Japan 28.4 59.9 35.0 9,.1 ... 31.5 24.9 !il Africa ~ - 437.8 - 10.0 7.1 £7.8 Belgian Congo 171.4 171.4 n.a. 171.4 Rhodesia 234.6 234.6 n.a. 234.6 S.l']'. Africa 6.6 n.a. 6 .. 6 Union of S. Africa 32.3 31.8 10.0 .5 21,8 TOTAL ~!29~!~ 2.370.7 ~'20.~ - 75.~ 50.~ = _=-:;;;:;;;:;;::;:a !/= estima.ted Source; American Bureau of Metal Statistics, 1948 Yearbook.  - 27 - ~ 1948 (In '000 short tons) Production Productio~ Consumption Apparent Apparent of of of Ore Metal Country Ore Metal Metal Importa(-)Imports(~) Export s (J.) Export s (I ~ •. !.p .!:: Western Hemisphere - 84tt·5 ~74'O 826.6 = ;;;.~ United States 386.9 461.3 754~5 - 74.4 -293.2 Canada 186.4 160.0 62.0 26.4 98.0 Mexico 217.7 214.4 8.1 3.3 206.3 Peru 53.5 38.3 2.0 15.2 36.3 Eastern Hemisphere ~ 211.7 561.8 - 20.8 ... t')0,1 - ~ r=; ~~ Europe - 202.8 ;00.2 519.6 ... ... 97.4 ,...-- -219,.1J: United Kingdom 2.6 2.6 210.5 -207.9 Belgium 72.4 23.6 - 72.4 48,8 France 12.8 38.4 76.0 - 25.6 - 37.6 Netherlands 21.0 - 21.0 Italy 33.1 29.1 13.5 4.0 15,6 West Germany 24.6 54.1 27.0 - 29.5 27~1 Spain 30.1 24.3 17.0 5.8 7.3 Yugoslavia 53.9 34.0 4.0 19.9 30.0 Others 45.7 45.3 127.0 .4 - 81.7 Australia 229.0 211.2 42.2 J:7.5 169·2 French Morocco 31.1 11:.1 s. W, A.frica 28,0 ~8.0 -...-- 'fOTAL 1.335·lt 1,385.7 1.388:4 - 50.3 - 2.7 = , , Source: American Bureau of Metal Statistics, 1948 Yearbook.  - 28 - ZINC 1948 (In '000 short tons) Produotiori Produ~tion Consumption Apparent· Apparent of of of Ore Metal Country Ore Metal Metal Imports(-)Imports(-; Exports (t)Exports (/) , -- ~estern Hemisphere 1!155.6 \ : 1,OM·1 858.6 111.5 I 185.5 II United States 621.5 790 • .3 806.8 -168.8 - 16.5 Canada 280.1 196,6 46.6 8.3.5 150.0 Mexico 189.1 55.7 5.2 133.4 50 0 5 . Peru 64.9 1.5 63.4 1.5 §astern Hemisphere 579.1 613 30 713.4 ... 73.9 ... 604 ;;;;;:;:;:;= = Euro~ - 360.6 561.4 ~ -200.8 -106.1 United Kingdom 80.6 250,0 - 80.6 -169.4 Belgium 169.5 42.9 -169.5 126.6 France 61.8 Netherlands Italy 13.5 87.9 15.0 29.5 101.5 23~0 23.0 - 48.3 - 15.0 58.4 .. - 39,7 8.0 6.5 1.re st Germany Spain 31.9 51.9 45.6 23 • .3 51.0 23.0 - 13.7 28.6 - .3 5 .. 4 Poland 90.0 73.0 45.0 17.0 28.0 Yugoslavia 24.0 10.0 8.0 14.0 2,0 others 61.4 53.1 100.1 8.3 - 47.0 Australia Belgian Congo ill.d 51.3 - 91.6 k2."..2 75.6 ....-- 51.3 45:7 -- TOTAL 1,734.7 1:697.1 1.572.0 37.6 == 125.~ Source: American Bureau of Heta1 Statistics, 1948 Yearbook.  - 29 - NET TRADE IN TIN CONCENTRATES AND F£TALS • * (In Lang Tons) Western , Hemisphere I . Eastern Hemi sphere . . COUNrRY United Canada Latin . Europe Asia Africa States 4 America ~ - . Belgian Congo 2,297 ... j 11,754 10 Bolivia 19,975 70 117,210 Burma 256 1,574 Hong Kong 958 20 60 646 "!"3,273 Indonesia 12,750 · 19,727 , .,. , I Malaya 29,497 2,675 • 6,543 3,024 420 453 I • i Nigeria , 1 8,78) Thailand 3,826 1,68l United Kingdom 560 12 -17,225 279 75 .,.9,214 United States - -20,288 - -55,60) -8,897 y Includes 1 ton exported to other countries (unspecified)~ hi Inc1udes.3 tons exported to other countries (unspecified). 0/ Includes 25 tons exported to other countries (unspecified). d/ Includes 296 tons exported to other countries (unspecified). ;; Inc1ude~ 1,048 tons imported from other countries (1.IDspecified). 11 Includes 1,648 tons imported from other countries (unspecified), * = Imports (-) = Exports (I-) ~: The totals in the last oolQmn will not balance, the residual being the approximate net imports of the consuming countries, other than the United Kingdom and the United States. Source: Statistical Bulletin International Tin Study Group, Sept. 1949.  APPENDIX :m: UNITED STATES: RELATIVE PRICE MOVEMENTS OF NON-FERROUS METALS INDEX, AVERAGE 1922- 26 =100 300~~~~-.~~~~~~~~~~~~~~~~ TIN INDEX (1922-26= 100) IN TERMS OF INDEXES OF: PERIOD COPPER LEAD ZINC 250 1932 110 107 102 ~~t--------~250 1938 116 139 123 1947 103 83 101 1948 124 85 99 1949 HIGH ,121 74 : 1949 pre-devaluation (August) 162 106 80 139 ............. I 200 I NOV. 1949 134 I III 123 ~1200 " r""\', J J J \ .... \ I I '. 1501-'- - - - - - - - - - - - - - - - - - - - r l - _ I COPPER, Electrolytic, New York " 150 100 AVERAGE 1922-26 BASE PRICES (DOLLARS PER POUND) 501-------~~~--~·--------~~----~-----_I COPPER .137 50 LEAD .077 ZINC .067 TIN .497 O~I I I I .. L I I I I <D (.\I Q) (.\I ,.., 0 ,.., (.\I ,.., V ,.., <D ,.., Q) 0 v (.\I v v V I 2! 2! 2! 2! en 0> 2! 2! ~ &I 2! SOURCE; American Metal Market I.B.R.D.- Economic Dept. No.410  Economic Department Prepared by S. Lipkowitz APPENDIX VI ~OIES ON OIL The probable impact of devaluation on petroleum prices, output and trade is likely to vary considerably over time. The immediate impa~t on prices is likely to be an increase in prices in terms of devalued curreDcies, roughly equal to the degree of devaluation - ... in other Hords, to keep prices in terms of dollar equivalents virtually unchanged. Over the longer period the tendency far prices to decline may be accelerated somewhat. Crude oil prices in the Middle East in terms of dollars have not bee~ changed since devaluation. Bunker oil prices (a form of export) have been increased in the United Kingdom by 40%, only slightly less than the full amount (44%) implicit in devaluation. While U.K. internal prices for pro- ducts have not been adjusted upward promptly or by the full 44%, the delay was due to a desire on the part of the U.K. Gover~~ent to minimize windfall profits to holders of stocks of petroleu~m and to minimize the increase in internal price levels. The impact of devaluation on crude oil production costs varies con- siderably. Venezuela, Saudi Arabia and Iran have not devalued, while Iraq, Bahrein and Kuwait have (in proportion with sterling). Thus production costs (in dollar equivalents) in these latter areas will probably be re- duced somewhat. Costs of depreciation based on past capital investnent will also decline slowly in dollar terms, but depreciation costs of new in- vestments will be benefited only slightly. Insofar as the new supplies and eqUipment are bought from the dollar area, no immediate reductions in prices are probable. Hhile it is unlikely that supplies and equipment purchased from currency areas which experienced devaluation will rise proportionately with devaluation, there will be some rise in soft-currency prices. Food  - 2 - costs (in dollar terms) are not likely to fall significantly, so that costs of SUbsistence payments or supplies will rise in terms of devalued curren- cies, and wage payments "are likely to be adjusted upward in partial compen- sation. Royalties are payable in gold shillings, and consequently will not be reduced in terms of dollar equivalent. In general, costs of production in areas which have devalued will likely rise in terms of local currency, but not nearly in full inverse proportion to the degree of devaluation. In the areas which have not experienced devaluation, costs are likely to be un- affected. The principal beneficiaries of cost reductions in dollar terms will be the same firms (except for the French participation in Iraq and Gulf Oil's share in Kuwait) as those who have substantial output in the non-de- valuing areas, consequently no one large international oil group will gain any measurable advantage over the others. In view of the foregoing and the fact that crude oil prices have not in the past fluctuated in close accord with even sizeable cost changes, it is unlikely that cost changes resulting from devaluation will induce any of the international groups to change its selling prices. From the demand side, it is quite clear that except for f1.].el oils, the possibilities of substitution (e.g. petrol or kerosene) are very limited. Inasmuch as the largest consumer of petroleum outside North America is Western Europe, which has had to restrict its consumption (e.g. petrol) for exchange reasons, it is clear that sellers cannot COlL~t on lower prices to so stimulate effective demand as to improve their profit position, In the case of fuel oils which compete with coal (and other fuels) the recent devaluation will probably tend to slow down the rate of growth of  -.3 - fuel oil consumption. The coal shortages of 1946/47 tended to stimulate the conversion of coal-burning equipment to the use of oil. Reductions in fuel-oil prices in early 1949, while coal prices were steady or rising, tendeq to accentuate conversion where material shortages and ex~h~nge re- strictions did not interfere. Since devaluation, however, European coal prices have fallen relative to oil prices; (a) Germany has not changed i~s price in reichsmarks, (b) Poland has increased its selling price in krona to Sweden about 24% as against 44% required to keep the dollar equivalent price unchanged, and (c) Great Britain is unofficially reported to have increased its coal export price in sterling about 20%6 In this connection it shoulq, however, be noted that the ECA has announced its stron.g oppo,.. sition to higher export than internal prices for coal, while the French Government has consistently opposed such practices on Ruhr coal and coke. If German coal is kept at its pre-devaluation export price in reichsmarks, the impact on British and Polish coal is likely to be grea·t enough to force a reduction in their prices. In any event, the competitive position of coal Va. oil in Europe has already been improved by devaluation and may be improved further in the absence of price reductions for fuel oils. The significance of such relative price movements for the short rWl is limited, since costs of conversion are substantial and frequently re- quire scarce materials and foreign exchange allotments. Consequent;ly, the immediate effect will likely be to reduce conversion to oil but it is un- likely to mark a significant reconversion from oil to coal. A major factor which may cause some downward revision in crude oil prices over the next few years irrespective of devaluation is the widening of competition in the search for overseas oil. Several independent American  - 4- oil companies which have obtained concessions in the r'Iiddle East in the past year may be expected to commence producing oil in volume within two or three years. Inasmuch as none of these firms have esta'tlished me.rketing OU'aeJ~s outside North America, their activities, if suc~essful, may havf~ the efTe ..; of reducing oil prices over a period of years. This tendency w:.11 be aug· mented as various of the pipelines now under construction in the Middle East by the major international oil firms come into use, with substantial reductions in transport costs, notably avoidance of Suez Canal tolls. In this connection, since it is public knowledge that ?xabian-knerican's oOn- tracts with the U.S. Navy provide for price reductions based on reductions in transport costs, price reductions to other consumers are likely to fol~ low. The total net world trade in oil and oil products was well in excess of 100 million metric tons in 1948, of which OEEC countries imporiled 45 million tons}/ About 60% of the exports originated in the Hestern Hemi- sphere, largely in Venezuela, about .35% in the Hiddle East and the remainder in the Far East. Any declines in dollar prices of petroleum will not probably have any immediate effects on the economies of the ~'1iddle Eastern areas where taxes 1/ Totals of imports or exports of crude oil and refined products are between 125 and 130 million tons (exclud~ng Aruba and Curacao which refine Venezuelan oil almost wholly for reexport). There is also some double counting involved in reexports of refined producte by the U.S.A. and some Hestern European countries which are net im- porters of petroleum.  - 5 - and royalties are a fixed sum per unit of production.ll HO"Tever, in Vene- zuela, where royalties are based on a proportion of the going price and income taxes are related to profits, a decline in prices will reduce govern- ment revenues directly by reducing royalty payments and also by reducing the profits ba~e subject to taxation, unless costs can be simultaneously reduced by an equivalent amount, which is quite unlikely. As stated earlier, declines in dollar prices are unlikely in the immediate future and if they occur will not be directly attributable to devaluation, but rather to other causes. The benefits of reduced oil price:s, when and if they occur, '..,rould inure to vlestern Europe, Oceania, Africa and some of the Latin American areas which are oil importers such as Brazil and Uruguay. Only if dollar oil prices were to decline appreciably, say 30;"b or more, would there be any likelihood of financial pressures on companies in the Middle East to secure significant cost reductions such as royalties, taxes or wages which would impinge directly on the economies of the Middle East. For the past two years the high profits of oil companies and the letting of new concessions at higher rates of royalty have resulted in dem11.nds for higher royalties under existing concessions. The economies of Middle Eastern countries may, however, be affected by changes in expansion plans already being considered before devaluation but likely to be acoelerated by devaluation. Devaluation, as pointed 011t above, will likely slow the growth of oil oonsumption to a minor e~tent beoause 1/ The only exceptions are the minimum annual rents applicable mainly to the areas not in production and the small portion of total Iranian royalties based on the dividends (not profits) of the Anglo-Iranian Oil Company in exoess of a fixed sum. There are no taxes on profits, and concession CO:'ltracts speoifically provide for exemption from Bll taxes to be levied in the future.  - 6- conversion of burning equipment from coal to oil is likely to be retarded. This may limit the market for er~de oil originating in the Middle East and cause some delay in expansion plans in that area. VJhile quantitatively the decrease in the rate of growth of oil consumption may be small, it should be recognized that individual oilfield, refinery or pipeline pro- jects are also small in relation to total world production, so that a de- crease in the rate of growth of I) estern European consumption of l;~ (say from 9% per year to 8%) means a decline of 500,000 tons per annum in con- sumption, which, over a period of four years equals the total current out- put of a country like Iraq, for example. Since there was already some doubt as to the ability to market in the next few years all the petroleum and products projected from Middle East oilfield expansion and Western European refinery expansion before devaluation took place, the effect of devaluation plus the continued pressure of American oil companies on ECA to reduce financial assistance for oil expansion by non-American companies will likely be a retardation of the expansions referred to above. It is not yet clear which Hiddle Eastern areas may be most affected, since much will depend on the progress of the U.S.-U.K. talks on petroleum now under way. The impact on the Hiddle East will derive from til slower than foreseen rate of foreign investment, involving smaller local currency requirements for construction labor. Economic Department Prepared by P.F. Craig~Martin APPEt\IJIX..,.YII M.F. Perkins NOTES ON COCOA I. G~NERA1 BACKGROUND 1. Estimates of world stocks of cocoa are not available for post'-vle,r years. Normal pre-war working stocks were 200 - 275,000 metric tons, of which about half were held by manufacturers of cocoa products. Prl:'ctically all stocks were held in importing countries as cocoa keeps only a few WPAk, under tropical conditions~ Manufacturers stocks were held at a h!gh level because of the violent speculative price changes which occurred l1eerly e"l/':;_'y season. 2. World cocoa exports in 1948, compared with pre-war, were as folloWS: World Ex~orts of Cocoa ~~ (thousand metric tons) Average 1934/38 1945 1946 l5tta 1948 (preliminary) Gold Coast 266 220 240 130 197 Q/ Other Africa 190 172 192 206 232 Brazil 113 84 131 99 73 Other 1,Jestern Hemisphere 95 58 69 79 81 Asia and Oceania _-2 --2 --2 --E! --2 TOTAL 673 539 637 570 589 !I Includes Togo1and. Source: U.S. Department of AgricLuture, OF&~. 3. World cocoa imports in 1948, compared with pre-war, were a9 follows: IJor1d Imnorts of Cocoa Beans (thousand metric tons) Average illL./38 1946 1948 (preliminary) United Kingdom 104 120 105 110 Germany 81 12/ 12/ 12 Y Netherlands 65 39 40 23 (continued next page)  - 2 - HarIg ImEorts of Coeoa Beans (thousand metric tons) Average 1934/28 1946 1947 1.21& (preliminary) France 43 40 41 51 Other Europe 88 47 68 80 United states 250 269 272 253 Canada 12 31 17 17 Other -28 ...ll J.§ ..12 TOTAL ~I - 671 Bizone only, crop year 1948/49 581 559 565 ]1 Not available. Source: U.S. Department of Agriculture, OFAR, and IBRD Estimates. 4. Prior to liorld Har II cocoa production was excessive in relation to demand and prices were low. During the war, however, production contracted due to the shipping shortage, blockade and the advance of swollen shoot diseaae in 1Pleat Africa, particularly in the Gold Coast. In consequence, the supply position is now much more favorable to producers than was the case pre-war; the likelihood is that no rapid increase in cocoa production may be expected due to the incidence of disease in West Africa. 5. The possibility of a considerable reduction tn Gold Coast production must be considered in e13timating future supplies. Swollen shoot disease in the Gold Coast, for which there is no known cure, is likely to ba~ a rapidly increasing adverse effect on production. Cutting out of affected trees is the only means of combatting the disease at present. As the disease is trans- ported by an insect from indigenous trees, continuing infection is to be ex- pected in the absence of a resistant variety of cocoa tree. It was estimated in 1947 that there were about 400 million cocoa trees in the Gold Coast: 46  - 3 - million would die of swollen shoot by the end of 1949/50 season; 15 million are infected annually; an infected tree takes two years or more to die; at current rate of infection Gold Coast production from existing trees would be finished within 20 years. The fall in cocoa prices since mid-1948, however, should make the policy of cutting out diseased trees in the Gold Coast easier to a¢minister and recent reports indicate good progress. Even with- out swollen shoot, a large proportion of Gold Coast cocoa trees are past their best productive years and declining yields can be expected. Cutting out and replanting, therefore, should in the long run prove beneficial to the industry as a whole. 6. During the pre~war period there was very little marketing organ- ization among producers who thus found themselves in a relatively poor bargaining positio~ Control over the marketing of British West African cocoa was not introduced until the beginning of Horld Har II. At that time the West African Control Board undertook the marketing of cocoa from the Gold Coast and Nigeria. In October 1947 two separate marketing boards -~ the Gold Coast Cocoa Marketing Board and the Nigeria Cocoa Harketing Board - were established. These Boards are now empowered to purchase the total ex- portable surplus, to prescribe prices paid to producers and to dispose of the cocoa. Prior to the opening of the crop season, the Board fixes and publishes the prices to be paid the producers by licensed buyers. At the same time fixed f.o.b. prices payable to the licensed buyers at the ports are announced. The cocoa so acquired by the Boards is sold through a jointly established organization in London. In Brazil a cocoa institute was organized at Bahia in June 19J1 but it was confined largely to indirect or non-price making functions such as ware-  - 4- housing, grading etc. Trade was carried on largely through the usual com- mercial channels though from 1936 to 1941 the Institute marketed about one- third of the cocoa crop. In 1939, the Federal Government introduced an official control whereby aU sales were made through the Institute; minimum prices were established and sales quotas given to exporters. From 1943 to 1946 the Institute was the sale buyer and seller of cocoa but in the spring of 1946 private trading was reintroduced.. In October, of that year, however, a certain measure of control by the Institute wa~ reimposed but it can not be said that the Institute exercise a degree of cont~ol over marketing such as exists in British Uest Africa. It is apparent, therefore, that a system of control over sales of cocoa has been established over a large portion of the world's exp~rtable surplus since the outbreak of war. In consequence, the formulation of cocoa prices and the returns to producers are likely to be on a different basis compared with that existing pre ...'...ar. 7. In the United states, the value of cocoa beans and produots re~ presents substantial proportion of the value of all products of the chocolate and sugar industries. The following figures illustrate their importance:~ Up±ted States: Value of Cocoa Bean ang Products Raw Materials to Total Va ue of Products of the ndustrv (19 7 ---- p,ercent A. Chocolate Industry - Cocoa beans, as such 40 to 45 B~ Confectionery Industry - Cocoa beans, as such 2) Cocoa bean products in terms) 9 of beans 7) Cocoa beans and products as obtained from the chocolate industry thus including added ingredients such as sugar and milk 23 c. Combined chocolate and confectionery industries - Cocoa beans, as such 12 Source: I.B.R.D. Estimates  - 5- United States imports of cocoa beans in 1948 totalled 253 thousand metric tons, valued at $193.7 million, compared with 250 thousand tons pre- war. United States warehouse stocks of cocoa beans, which were negligible during 1947 and 1948, were increased considerably during 1949 although re- cently declines have occurred reflecting a period of scarcity before new crop supplies become available. However, they are still only one-quarter to one-third of normal pre-war figures. In addition to warehouse stocks, pro- cessors normally held about 50,000 to 75,000 tons pre-war but they are un~ likely to have similar quantities an hand at present. United States Warehouse Stocks. Cocoa Beans (thousand metric tons) Pre-war (1939/41) 60,000 - 90,000 Mid-Harch, 1949 1,850 l1id-September, 1949 24,500 Mid-November, 1949 14,197 Source; U.S. Department of Commerce 8., Almost all export supplies of cocoa beans go to European markets, apart from those going to the United States and Canada. Pre-war about 50 - 60% of world imports or around 360 thousand tons were taken by European countries; in 1948 Europe imported only 280 thousand tons, or 49% of the total, largely owing to small imports by Germany and the Netherlands. Euro- pean demand is strong. Rationing of chocolate and sugar confectionery was recently re-lmposed in the United Kingdom after being lifted for a short trial period because unrationed consumption proved much greater than &ltl",,' cipated. Chocolate bas been reappearing in i"Jestern Germany but is quicklY bought up and German imports of cocoa beans are increasing. Manufacturers in the Netherlands are expected to work to near capacity in 1949/50 as a  - 6 - result of the trade agreement with the United Kingdom whereby ~l million of Dutch chocolate goods are to be imported by the United Kingdom. 9. In recent years prices of cocoa beans have inc:reased considerably as compared with pre-war Ullder the influence of a shortage of supplies and strong demand. Prices for Cocoa Beans l SEat New York Jj/ (U.S. cents per lb.) ~ Bahi; Difference ..........-.-~ Average 19J4/38 6.1 6.1 nil. Average 1947 34.9 34.4 - 0.5 Average 1948 39.7 39.0 - 0.7 January 1949 26.0 27.4 ,t 1.4 February " 20.3 20.8 ,t 0.5 March " 18.4 19.3 f. 0.9 April It 20.0 21.9 f. 1 .. 9 May fI 19.1 20.7 ,t 1~6 June " 18.9 19.8 f. 0.9 July \I 21.3 20,8 - 0.5 August " 22.7 21.1 ... 1.6 September" 20.0 18.6 ... 1.4 October " 20.8 l.9.9 - 0.9 November " 24.9 22.3 - 2.6 JJI f.e,-b. importer to manufacture:r; no duty. Source: U.S. Department of Commerce, and U.s. Department of Labor. Prices for cocoa beans at the end of the 1948/49 season were still nearly tour times as high as pre-war although they had fallen by 60% from the record high figure of 51 U,S. cents per pound, Accra spot NeiV' York, reached in November 1947. This drastic fall in prices reflected unexpectedlY large crops in spite of swollen shoot disease in t"fest Africa. and the fs.lling off in United States importse' Prices fell between July 1948, and March 1949, from 44.5 u. s. cents per pound to 18.5 cents and all rrain crop supplies were cleared, with the exception of some Brazilian. The Brazilian surplus was reduced to a relat:l.vely small si~e by the beginning of October 1949, "'Then  - 7 - the remainder was held off the market in anticipation of the opening of trading in 1949/50 coooa. Prior to devaluation buyers refrained from en- tering the market, when stocks were adequate, in the hope of lower prices and not beoause they were unwilling to enter the market at all. The apparent appreciable decline in U.S. oonsumption of coooa beans from 4.2 pound$ per head in 1947 to 3.7 pounds in 1948, generally attributed to high oocoa prices is misleading, as published figures of consumption do not include changes in manufacturers stocles. Manufacturers bought fairly heavily in 1947 while prices were rising and deliberately held off the market in 1948. This did not affect consumption of cocoa products as production or all con- fectioneTY in 1948 was 3% greater than in 1947 and of chocolate confectionery was 20% greater. The policy of holding off the market cannot be continued indefinitely as, although they are not reported, manufacturers stocks cannot be very large in view of the shortage of supplies during recent years. That this is so is reflected in the recovery in U.S. imports in 1949, those for the first ten months of 1949 being 12% and 6% above the corresponding 1948 and 1947 figures. 10. Prices for 1949/50 cocoa will depend largely on the marketlng policy of llest Afrioan Boards. On August 24, 1949, they announced fixed prices to be paid to producers for 1949/50 crops at 30% below 1948/49 figures for Gold Coast cocoa and 15 to 20% below for Nigerian cocoa. This reflects more the decline in prices which has taken place since the 1948/49 crop was harvested than any indication of 1949/50 price prospects. In the absence of any indication of selling pressure traders appeared to consider that prices for new crop cocoa would be above 20.7 cents per pound, spot New York, the average for the first nine months of 1949.  - 8 - 11. The West African Marketing Boards commeneed selling 1949/50 crop cocoa during November and the buik of trading. dons during the month was in sterling coooa.. The AfrioM Boards oommenced sales at l6~ per;O kg. c .. i.f. European ports for December/February shipment (20.3 cents per pound) and at the end of November were selling at 19;~ (24 cents per pound) for January/March shipment. They sold pareels as they bought them in West Africa, with the result that there has been a recurring accumulation of buying orders and prices have been very firm. It is estimated that about 125,000 tons or nearly 40% of the current Gold Coast and Nigerian main crops and over ;0% of this seasons Bahia crop had already been sold by the end of November, Brazilian shippers show an inclination to holi back and keener United states demand for West African cocoa may be expected to develop se as to continue the recent price advance and narrow the price differential between Accra and Bahia cocoas. Brazilian sales have been steady but at end Novembelt' prices were nearly 15% below those for West African. Daily Prices for Aecra Cocoa ~eans! Spot New York a/ (U.S. cents per pound) .Q& September October Novemb~ 1 20.8 23.5 2 21,4 24 •.3 3 19.0 24.0 4 19.0 24.0 5 19.0 24.0 6 21.4 19.0 7 21.1 19.0 24 •.3 8 20.5 9 21.0 24 •.3 10 19.4 24.3 11 ~. 12 20.5 25 ..0 13 20.6 20.4 14 20.4 20.5 24.8 15 20.; unquoted 16 " (continued next page)  - 9 - Dai1X- Prices for AC9;t'Ja. C99~a. .J~ea.ns.t. gpot New ~ !J! (U.S. oents per pound) , Dey October November , 17 20.9 unquoted 18 20.9 tf 19 19.5 21.5 25.8 20 19.3 22.0 21 19.4 22.0 25.5 22 19.1 25.8 23 18.8 25.8 24 "'" 22.5 25.0 25 22.8 25.0 26 18.8 22.6 25.8 27 28 18.8 18.5 23.0 22.8 .- 25.5 29 18.8 30 31 Average 18.8 - 23.0 20.8 25.0 25.3 - -- 24 .. 9 !I f.o~b. importer to manufacturer; no duty. Souroe, New York Journal of Commerce II. THE EFFECT OF DE'llALUATI.0N 1. Quotations on the New York Terminal Market continued to decline during the second half of September but little trading was done as Brazilian shippers were holding off the market while awaiting an indication of the Afrioan Boards selling prices for 1?49/50 cocoa. Prices in October began to recC)ver in oonsequenoe and. by mid~October dollar prioes were baok to mid-September levels. tath the oommencement of new crop marketing in Novem- bel' dollar prices have increased steadily and by the end of November were 25% above the mid-September le~el. Sterling prices have thUS risen by about 82% sinoe mid-September. lII. CONCLUSIONS 1. In the short run the deoline in United States imports of cocoa appears to have been halted and there is some indioation of a recovery,  -10 - Under these circumstanoes, and particularly in view of light United States stocks, United States demand may be expect-edto be about as strong in: 1949/ 50 as in the preceding season. 2. European demand is strong and imports into the important German and Dutch markets have been increasing. 3. No selling pressure is evident at present and, even if exportable supplies reach the 1948/49 figure in 1949/50 (which appears doubtful), ., strong demand, the low level of stocks, and the controlled marketing of both British ~lest African and Brazilian supplies (about 70% of world exports), should jointly tend to raise prices. Dollar prices for cocoa in 1949/50 can be expected to be about 25 - 30% higher than the average for the first nine months of 1949 and thus an average 10 - 15% higher than the average of 23.2 cents per pound for 1948/49. Dollar earnings from cocoa exports should show ari even greater increase because of increased quantities at these prices. Dollar prices would probably have gone still higher without devaluation since European imports would be even greater than at present when non-dollar prices show a post devaluation rise of 82%. Wituout reliable data as to the respective elasticities of demand in the dollar and non-dollar areas, it is impossible to estimate how much higher the dollar price would have been with- out devaluation; a rough order of magnitude of 10- 15% might be suggested. 4. Although there appear to be no major technieal reasons why cocoa production should not be very considerably increased, any increase is likely to be slow as the cocoa tree comes into bearing four or five years after nursery stock has been planted out. The incidence of swollen shoot disease in \.Jest Africa should have a retarding effect en' any increase in world su- plies as considerable replapting will prove necessary even if supplies are  - 11 - only to b~ maintained at current levels. 5. The demand for co~qa is alnn')st a direct function of the level of nationallnoomes and partic~arly of the national incame of the United States which takes about 40% of world imports. Since cocoa is used largely as flavoring in rather high priced products, moderate reductions in supply may result in substantial changes in price. Reasonabl.y acourate estimates of export supplies are impossible to make until harvesting of the orop is well under way so that fairly violtmt fluctuations in prices, largely specultitive, are common in the months preceding and weeks following the commenoement of a new harvest in October. 6. Having regard to the supply and demand situation and assuming a .contlnuing high level of national income in the United states together with at least current levels in Europe, cocoa prices should be maintained at well above pre-war levels for a number of years.  SELECTED METAL PRICES IN U. S. AND U. K. BEFORE AND AFTER DEVALUATION UNITED STATES UNITED KINGDOM U.S. DOLLARS U.K. PENCE PER POUND * PER POUND * 30" ....-+----.----, 17.9 ,, · COPPER, Electrolytic .20 HI-----~ b-l-""':':=-::"':"--c=---t 11.9 · I0 .30 LEAD, Good soft . 20 i-. ------I n' Ll..LJJ-LJ..l.U..LLLl..LLl..J..J..J c......l-IJ.....L....L...l.-L...L....L...l.........L-L- r-~'--........::::! . . . . ==;;;;;;;;;;~ II. 9 5.9 17.• I I . '0 LuJ,-'I--'--L-.L.....L--'-I~l-.L~ .Iolilltlllil 5,9 L-l.-1.L-L-I--L-'--L-l..--L-'-.L....l , .40 ITIN, Pig, N.Y. :-:---l I 1.40 .--.---------,83.4 ,+-- . TIN, Ingots I. 1 Ii\- --il--------i 1.30 f - - . ~~---' i--f-+-----\---I77.4 I ' I , I ! 1.201--------1 t---i---- 1.201--------1 I ' -------\--1 1---7,-<-, I I I : II 1.101--------1 I - - - + - - - - - - - - t I. 10 I - - - - - . - - - l i---t,:-'- - - - - - - - 1 6 5 . 4 I' r 1.001---I------l 1---'--+--------1 I .00 I ~r===:t I---..-!,'<-,--- { - - - - - - 1 59.4 1\ .90 '-W.-LLLJ...J...L.LL.L-LLL-U....L.LJ 'I 20 .10 ~ . I '--'-----'-L-l--'---'-~'__'_'__'''-'".....J ZINC,Prime Western,N.Y.i I ~~I~...J...J.....J.,-'-~~ M_ . · a .90 20 .10 ~ Ullw.WllilllL 1IIIIIt I '-------" II I I . I I ZI NC, Prime Western I I I I " I 153.4 .85.80 11 9 . 5.9 . 20 k: il-l--+-1- - - - - .20 . R J 11.9 A UMINUM In ots 1'--------- .I0 ....JI'--L-'--'-1 ..~ lb}HJ1j~H~h m~?b~ll. .10 h III IIIII~ L.L.-J.I....LJ I I ! 1 ! I ! 1 5 .9 .60 ,.-------~ r--:----~------. .60~ 35.8 I NICKEL I .50 \ - - - - - - - - 1 I--~_:_~--.------__l .50r·--------l I--~~- ~----~--~29.8 .40 \-.-__.------1 1---1_ _ _ _ _ _ _-1 40bl:j,....i ~~~-.-....j23.8 .30 '--L-1.L-L-'-L-'--L-L..-'--'--L...J 17.8 SEP OCT NOV J J D J SEP OCT NOV 1949 1948 1949 1949 MONTHLY WEEKLY MONTHLY WEEKLY '* Dollar and sterling scates are related ot $ 4.03 per I.. sterlinQ so that prices prior to devaluation can be read from either scale. After devaluation, prices in I. sterling must be read from the right-hand scale while equivalent dollar prices must be read from the left-hand scale. I.B.R.D.- Economic Dept. No.408  PRICES OF SELECTED RAW MATERIALS IN VARIOUS MARKETS BEFORE AND AFTER DEVALUATION UNITED STATES UNITED KINGDOM U.S. DOLLARS U.S. DOLLARS UK PENCE PER POUND PER POUND* PER POUND * 30 , _ L - -_ _ _ _ _ _---, .30 r - - - + - - - - - - - - - , 17.9 . RUBBER, No.1 RSS, N.Y. .20 p""' .. _--'==-=::--_I r - - = = I - - - - - - - - _ I , RUBBER, No.1 RSS .\0 . I0 LLL'-'-'-LLLLLL.L.Ll.l..U.J..J '--'-.l.l.-J'--l..--'-- '---1--'--'---'-",--, 5.9 2.00 2.00 , 119.1 ! I WOOL, Cleon, Boston WOOL, Dominion, Clean, 64/70'5 , 1.90 1.80 I I I-'t\ I I I I I \ I " I I ,.. I 1.90 1.80 l \r' 1\ I I I I I I I 113.2 107.2 1.70 I' I • \i I . 1.70 w , ! /' f , , " 101.2 1.60 \' I , l'" )~CAPE, 64/70'5 r-V'!--------1 1.60 95.3 , ...- ""i !/~lerling II 1\ prices \\: 1.50 !J '.I I (scale_) • i. .. 1.50 ~.-~ 89.3 III AUSTRALI~.64/7O!; \} \.40 " I 1.30 J~ /........ ! ': to . . \ I r .L__ -,''''' 1.40 1.30 ~ i sterling or dOllar \, (~ f~Doliar equivalent scale) 77.4 83.4 I' L.. equivalent at $4.03 I at $ 2.80 per i .. ···I.···~;;;;,. 1.20 1 . ! I'", ...... 1.20 _ peri " I I -- .A 71.5 1.\0 '. I ~ Y;' .... }'" ,.'- 1.10 I I 1./ 65.5 ..... ~onlivedean, 60/64's f 1.00 Illilllllllllllill I~ I I 1 1 I I til 1.00 11111111 Ii II I I I 11 I I I I I I I I 59.6 .50 I COCOA, Beans, NY. I * DOllar and sterling scoles are related at $ 4.03 per f. sterling SO !not prices prior to devaluation can be read from either scale. After .40 devaluation, prices in I. sterling must be read from the right-hand scale while equivalent dollar prices must be read from the left- .30 r ----T-~_I f----t--------1 hond scale • l COTTON .20 ... IN FOUR COUNTRIES .IOCIIIIIIIIIIIIII 60 . COFFEE, Beans; N.Y. 1 .60 i - j - - - - " ' ; ; : - - - - - - i r - - j - - - - - - - - - i .50,--1- -_ _ _--1 f----<------=o~""""'... .50 H~-;_---_I r - - J - - - - - - - - - i I .40 f-I- - - - - - - 1 1 - - - 1 - - - - 7 1 ' - - - - - 1 J ...... Ashmauni, F.G.F.,Alexandria "'-L_I r-----~r-~--I~~,r-------------~~ ~ .30 .20 30 i~,~.Y. IDOLLARS ~::{::=::==:::::;:;;~ PER "RO) .10 f - - - - - - - _ I . 1OJ J D J --'--L-LN--'O'--V-L..J '--''--S--'ELp-'--l...-LO-C1T D J SEP OCT NOV 1948 1949 1949 1948 1949 1949 MONTHLY WEEKLY MONTHLY WEEKLY I.B.R.D.-Economic Dept. No. 409