The approximate annual productive capacity of the above plants at 4.25 tons per retort is 126.000 tons of slab zinc, and they represent new investment, including the associated acid plants, of perhaps $15,000,000. Also a very large electrolytic zinc plant, with an annual slab-zinc capacity of 50,000 to 60,000 tons, has been constructed by the Anaconda Copper Mining Co. at large expense and other smaller electrolytic plants have been constructed throughout the country. These large investments entitle the industry to a tariff sufficient to give them and their workmen proper protection. (d) Western supplies of zinc ore increased.-Since 1913 large investments to open up and develop mining properties throughout the far West have been made, and these mining properties and their workers are entitled to proper consideration. (e) Costs of mining and smelting increased.---Since 1913 costs of producing zinc ore have increased from 50 per cent to nearly 100 per cent, and those of smelting zinc ore at American smelters have more than doubled. Present costs are somewhat higher than they probably will be within the reasonably near future, but one can not expect a return to prewar costs either in mining or smelting. In zinc smelting, as a relatively large share of the cost consists of hand labor and coal, one can not expect the same degree of return toward prewar conditions as in the smelting of the other base metals. FOREIGN CHANGES. (a) Effect of metallurgical improvements. Since 1913 there has been a great advance in the metallurgy of zinc, both as regards improved mill recovery of zinc from crude complex ores for subsequent treatment to produce slab zinc, and also in the development of the electrolytic process of producing slab zinc (which is usually applicable to the ores at or near the point of their production, thus materially reducing the freight factor), and this method has already been introduced on a large-scale basis in Tasmania and is to be used there on a very much larger scale in the near future. The cost of producing slab zine by this electrolytic method depends to a large extent upon the cost of the electric power consumed, and as the electricity used in electrolytic zinc production has thus far invariably been developed from water power the costs of producing zinc by this method have not gone up comparably with those of the fire smelters. By these metallurgical improvements the situation relative to some very large deposits of zinc ore in different parts of the world has been changed so that whereas in 1913 they were not factors seriously to be reckoned with now it is possible for slab zinc to be produced from such sources at a cost considerably below what can be done in this country on any large known body of ore devoted to such production. (b) Additions to zinc-producing capacity in Europe.-As in this country, the pressure of war forced an increase in the zinc-smelting capacity of Great Britain by extensions to various smelters already in existence and by the construction of one very large plant, which is almost completed. With the increased slab zinc-producing capacity of Great Britain and of the British Empire elsewhere, it would appear that the British, heretofore the principal importers of slab zinc, are likely in the future to be more nearly able to produce their own requirements and will not have to rely upon the production of the continental zinc smelters, thus making it necessary, if the latter operate, to find new outlets for their production. (c) Merican possibilities.-The ability of Mexico to produce zinc ores on a large scale has never really been put to the test, but well-informed mining men know that large supplies of zinc ore are available in Mexico, when matters are quiet there, for export either to this country or to Europe. With the Broken Hill Australian output under contract to them, the principal European smelters never felt the necessity of using Mexican zinc ores to any large extent, but as these Australian ores are not now likely to be available again to Germany and Belgium on the same scale as hitherto, it is probable that these countries will find the ores they need to take the place of the Australian ores in these Mexican ores, so it should not be reckoned that taking away the Australian ores will shut down the continental fire smelters for any considerable time. In addition, there is likely, on account of the increased freight rates on zinc ores from Mexico to the United States, to be substantial development in Mexico of fire smelting based on oil as fuel. One zinc smelter using oil for fuel has already been established in Saltillo, and under stable conditions in Mexico it very likely will be extended. Before 1913 Mexico was not rich in cheap fuel, but since 1913 the fuel-oil resources of Mexico have been exploited on a large scale, and it is now reported that oil has been discovered in the immediate zinc-producing area of that country. With protection of investments in Mexico assured, with its cheap labor, its cheap zinc ores, and its now enormous quantity of cheap fuel, Mexico becomes a potential producer of slab zinc comparable at least to and possibly greater than Australia and Burma. (d) Effect of the termination of the Kartel agreement.-Prior to the war there existed an agreement amongst the European slab zinc producers to maintain production only on a basis which would insure at all times a reasonable return on the capital invested. This agreement, now terminated, had the effect of maintaining prices in London, the price-basing point, at probably a higher level than otherwise would have been the case. Unless some such new agreement is effected (and one can not see any signs of this at the present time, nor would one expect it under the changed conditions) the London market, on the average, is likely to rule at a lower level than it did under the Kartel arrangement. (e) Foreign exchange.-In one of the preceding paragraphs brief mention was made of foreign exchange. Never before has it been necessary to take the question of exchange into consideration in framing a tariff, but conditions have been so completely upset by the war that one can not afford to overlook the state of affairs existing in regard to foreign exchanges. We find the pound sterling worth not much over 70 per cent of its normal par; the franc at not much over 30 per cent of par; and the mark at not much over 5 per cent of par. If the foreign exchanges of these countries are to remain permanently at a discount, recognition of this must be taken into account in framing a tariff. 2. Answering question 2, we do not see any reason for doubting that all of the changes above mentioned will be permanent, except that the costs of mining and smelting zinc ore may be reduced somewhat. In view of the large national budgets which are a necessity for many years to come, it is impossible to expect a permanent return to a general prewar cost basis during the period under consideration. Possibly some arrangements may be made to rectify the foreign exchanges. 3. The policy of the Republican Party in regard to tariff has always been to provide such tariffs as will protect industries of the United States, both as to their wage earners and investors. This country can produce all the slab zinc from its own ores that the country needs, but to do so requires adequate protection, as shown herein. 4. The amount of tariff required should, of course, be based on the difference in production cost as between the United States and foreign countries, and under normal circumstances a reasonably accurate statement of the costs of America's principal competitors could be prepared for the use of the committee, but authoritative statistics of the costs in some of the chief competing countries are not readily obtainable under present conditions. In Europe before the war the two principal slab-zinc producing countries were Germany and Belgium, Germany being the larger. Before the war, and since, both the United States and Germany produced practically their entire output of slab zinc from their own raw materials and with their own labor. German wage rates before the war in a general way were approximately one-half the wage rates of American labor. The cost of slab zinc produced in Germany before the war was approximately 80 per cent of that in America. The relative wage rate in Germany, expressed in dollars and cents at current rates of exchange, is now about one-fifth of the American rate. This works a relative cost in Germany to-day of about one-third of that in America. Based on an American cost of 6.9 cents, the difference between this and the German estimated costs of 2.2 cents would be 4.7 cents per pound. This extreme difference is not likely to be permanent. Belgium, the next largest producer in prewar times, having no zinc ores, is under the necessity of purchasing them from countries with exchange rates probably against her, so that her situation from the standpoint of cost is not so favorable as that of Germany. Within the past two weeks slab zinc originating somewhere in Europe was selling in London, and was probably bought for import into this country, at a price at least 2 cents per pound f. o. b. New York, plus 15 per cent, duty paid, below the estimated bare operating cost of producing slab zinc from Oklahoma ores, plus the freight to New York. For many years the United States Geological Survey has obtained each three months from each producer of slab zinc the amount of production and stock on hand. These figures are computed by the United States Geological Survey and the total figures only published quarterly, which serves as a guide to the rate of production required. On the cost of producing slab zinc in other parts of the world than Europe, we have an authoritative estimate by the company operating the electrolytic zinc plant in Tasmania, of what it expects to do commencing January 1, 1923. In a circular recently put out by this company, which has powerful financial backing, a skilled and experienced organization, and has been operating its electrolytic zinc plant in Tasmania for two years, it is stated that with slab zinc selling in London for £30, the net profits of the company, after making all necessary provision for depreciation and amortization, will be at the rate of £413,000 per annum from the beginning of 1923. Based on an output of 100 tons per day, the capacity this plant is expected to reach in two years, this would mean a cost, including all depreciation and amortization, of 2.92 cents per pound (American basis) for slab zinc f. o. b. London when the exchange is $3.50, or 4.06 cents when the exchange is $4.86. As the ocean freight from Tasmania to New York will not differ materially from the ocean freight to London, the above costs would represent about what the slab zinc could be laid down for in New York, duty unpaid. To get some idea of how this cost compares with United States costs, based on Oklahoma ores, and fire smelting, we have made the following tabulation which, it should be distinctly observed, does not include depletion, depreciation, or interest in the costs of either mining or smelting: 1 short ton of 60 per cent Oklahoma zinc ore f. o. b. cash cost_ Total Cost per pound of spelter. Present. $33.00 6.00 25.00 63.00 6.30 .50 Cost f. o. b. New York.. 6. 80 To cover depletion, depreciation, selling expenses, and allow a fair return on mining and smelting investments, would require an addition to the cost of slab zinc in this country of 2 to 23 cents per pound, depending upon conditions. As regards whether the tariff should be on an ad valorem or specifis basis, we prefer the specific basis because we have already seen that the question of exchange, over which we can exercise very little control, may have the effect of reducing the duty when perhaps protection is most needed. Comparing American costs on Oklahoma ore with the Tasmanian costs, which include depletion and amortization, is seen that a tariff of at least 3 cents per pound is necessary for the preservation of the American slab zinc industry on a reasonably prosperous basis. Respectfully submitted. AMERICAN ZINC, LEAD & SMELTING CO., By WILLIAM A. OGG, President. STATEMENT OF MR. J. W. SCOTT, GRAND FORKS, N. DAK. The CHAIRMAN. You have known, Mr. Scott, of course, of the depression in the price of wheat in the Northwest which has resulted in the past few months. As a producer of grain you have naturally looked into the subject of the causes of that. Can you give the committee any information that will be of use to it on that question? Mr. SCOTT. On the cost of production? The CHAIRMAN. No; on the causes of the slump in the price. Mr. SCOTT. As I see it in North Dakota, the real cause for this big slump was this Canadian wheat coming down in such great quantities that it took the place of our wheat and depressed our market. I might say, I suppose, that the bears took advantage of these conditions, and they can help it along by selling immense quantities of wheat that does not exist. I believe they do some harm sometimes in that way. But, on the other hand, they have got to buy that wheat back. There is no way that they can avoid buying it back, and it seems to me that if they depress the price when they are selling it they must to some extent, anyway, put the price up when they buy it back-and they have got to buy it back. The CHAIRMAN. That is, the man they sell to must buy it back? Mr. SCOTT. They have got to. There is no way that they can get around it. They have got to buy it back, and they have got to buy it back in the market where they sell it. If they sell in Minneapolis, they have got to buy it back there. If they sell in Chicago, New York, or Duluth, they have got to buy it back there. Our Democratic friends up there were the first ones to ask the President for an embargo, in our State, that I know of; but we all think, both the Democrats and the Republicans, that this Canadian wheat coming into the United States was the main cause for depressing the price away below the cost of production. Every farmer that sold after October came in, sold his wheat at a loss. The CHAIRMAN. And this immense amount began to come in in September? Mr. SCOTT. Yes, sir; in September I guess the greatest amount came in. It kept coming from September right along up to the close of navigation. Their wheat comes into the United States principally by water from Port Arthur and Fort William. It comes down the Lakes. That is the cheapest way. The CHAIRMAN. Is there anything else you want to say? Mr. SCOTT. No; nothing, unless you wish to ask any further questions. The CHAIRMAN. I have no further questions. Have you, Senator McLean? Senator McLEAN. NO. The CHAIRMAN. We are very much obliged to you, Mr. Scott. Mr. SCOTT. Not at all, sir. The CHAIRMAN. I want to put into the record, following the testimony of Mr. Scott, a letter from the Farmers Grain Co. upon the subject of abolishing future trading in grain, and I ask that the reporter enter it in the record. (The letter referred to is as follows:) Senator P. J. MCCUMBER, Washington, D. C. THE FARMERS GRAIN Co., Devils Lake, N. Dak., January 10, 1921. DEAR SIR: There are several propositions before Congress, as we understand it, to abolish future trading in grain. While we will readily admit that there has been abuses of future trading in the past, and especially this last fall, we are afraid that if Congress changes our present marketing machinery they should be very sure that something workable is put in its place. If not, losses will result to the interests that it is aimed to help. The farmers' elevators have materially changed the country end of grain marketing from what it was 20 years ago, and it has' undisputably been to the advantage of the grain growers. If hedging is abolished, we think we would all be put out of business, as we do not think we could get credit and be financed without hedging our purchases. Grain would undoubtedly have to to be bought on larger margins to cover the greater risks, and that would have to come out of the grain growers' pocket. We have watched carefully the different plans proposed by different farmers' organizations and have not yet seen any practical, working plan that is ready to take the place of what we have now-grain exchanges, with their chance to hedge your purchases. We represent directly 18 country elevators that this company owns, but indirectly all the farmers' elevators in the State. Take hedging away and we can not continue business. Respectfully, THE FARMERS GRAIN CO. By OLE SERUMGARD, Manager. (Thereupon, at 4.30 o'clock p. m., the committee adjourned, to meet at the call of the chairman.) |