!
2
3
185
March, and that the clearances from bond are drawn from the Chinese dealers' earlier purchases.
Sir,
A detailed return of all opium in stock on the 30th April is also enclosed.
Enclosure 2 in No. 1.
have, &c.
E. H. FRASER.
Opium Importers to Consul-General Fraser.
Shanghai, May 12, 1914. WE are in receipt of your letter of the 1st May, which has had the careful attention of all importers.
From the despatch of His Majesty's Minister quoted in this letter we fear that we have not made our position sufficiently clear, and we must therefore deal with the Minister's points in some detail.
His first point is that if we, the importers, had been satisfied with a reasonable return on our capital, the dealers could have sold at a rate which, while leaving them a fair margin of profit, would have enabled a larger number to buy. That is to say, if we had sold cheap the dealers would also have sold cheap.
In reply we must again point out that the price fixed by the dealers is dependent,
not on the price charged by the combine, but on the demand.
The importers can only sell to the members of the guild; these in turn fix the price, and the combine price is invariably determined by the market price; and it is our intention to regulate our prices in the future so as to meet liberally the demands of the market until our stocks are exhausted; and we trust that His Majesty's Minister will be satisfied with this assurance.
The combine price has never kept dealers from buying. As we pointed out in our last letter, a very large amount has been bought and cleared which has formerly been treated as consumed stocks but which has not in fact gone into consumption.
His Majesty's Minister proceeds to suggest that we should put the matter to the proof by fixing the price at a fair and reasonable margin of profit.
Now, although we foreign merchants have only about 7,600 chests left unsold, yet there are about 3.800 chests in the hands of Chinese merchants which have been bought and paid for, but which are still stored in the bonded godowns and are treated as part of the general stocks, making a total stock as on the 30th April 11,429 chests. That is to say, our only purchasers are greatly over-stocked.
The chief reason for this is that the area of consumption has recently been limited to Shanghai. It is now impossible to get opium through into the interior owing to the rigorous search for arms. However much the price is reduced, the closure of the whole of China to Indian opium is effective to prevent sales in the interior owing to this strict searching of all kinds of passengers' luggage and goods for arms and ammunition.
The Chinese merchants and shopkeepers who stocked a large quantity of opium are therefore faced with a greatly reduced demand, which has occurred at a time of exceptional trade depression. They will not, therefore, replenish their stocks or make further purchases until a considerable portion of these stocks have been realised and gone into consumption. They have neither the desire nor the power to buy further stocks; as the whole of their capital is locked up, and they have no longer the margins necessary for buying on credit.
The market price has consequently gone down about 1,200 taels per chest, and unless the demand improves prices will decline still further and the combine prices will have to be lowered in sympathy. The combine invariably follows the market, price being dependent on deliveries: our last quotations of 6,830 taels are merely nominal and cannot be considered the market price.
Now, suppose we were to materially reduce the combine price at this juncture, what would be the effect? Our only buyers are overstocked on a falling market. They would certainly not buy any more until their stocks were realised, as the safety of their position lies in the maintenance of the present level of combine prices. So long as they anticipate that combine prices will be maintained they will be always doing all in their power to buy. If there is a prospect that the prices will fall they will naturally wait.
But it may be said that, if the smoker can get his opium very much cheaper,
the demand will be increased, the smoker will smoke more, there will be less adulterations, and the usual result of a lowering of prices will follow in the shape of increased demand.
But we would point out that the guild merchants have in fact reduced their prices as previously stated; but, in an article like Indian opium, a reduction of price does not have much effect on demand. The confirmed smokers will have it, and these are almost entirely drawn from the wealthy classes.
So that a considerable reduction in the combine price would not induce the dealers to increase their already heavy stocks by buying from us, nor would it materially improve the demand, while it would shatter the confidence of the market and probably produce a panic. We are convinced that it would be wrong policy to let it he thought that, by merely waiting, the Chinese will be able to buy at a lower price.
We desire once more to emphatically state that everything in our power has been and will be done to expedite the consumption of the stocks in hand. We have already explained in our letter of the 15th April that owing to general stagnation in local trade, opium, in common with piece goods, cotton yarn, &c., is suffering from an absence of demand. During last year large quantities of opium were purchased and taken delivery of by dealers and smokers in anticipation of future requirements, this stock is now going into consumption and naturally affecting present deliveries. Furthermore, the rigorous search for arms by the provincial authorities, resulting in numerous wholesale seizures of Indian opium, although such opium is duty paid and accompanied by the necessary customs documents, is preventing dealers for the present from taking opium into the interior, as they find that there is no redress for the confiscation of their property.
Since the 1st March the market prices of opium have steadily declined, and prices at present are as follows:-
Malwa Bengal
Taels.
5,700 5,600
a decline of about 1,200 taels respectively; and so long as there is an absence of demand and deliveries are unsatisfactory, as at present, prices must continue weak and steadily decline. In regulating prices importers will certainly give the most earnest consideration to the views of His Majesty's Minister.
Our attitude is very carefully watched by the numerous dealers, wholesale and retail, numbering over 1,000; and any loss of confidence in us will be followed by a panic, which, instead of accelerating deliveries, will actually retard sales as well as clearances. Opium is a commodity that the Chinese both locally and in the interior have been hoarding for a long time past, not only Indian but native opium as well, and in times of panic each dealer or smoker, instead of making fresh purchases, will utilize his own stocks; we have reason to believe that these hoarded stocks are sufficient for many months consumption.
In conclusion we desire once more to reiterate that no effort will be spared by us to meet the views of His Majesty's Minister and to accelerate sales and consumption, so that our stocks will cease to exist at as early a date as possible.
We beg to enclose copy of Messrs. Noël, Murray and Co's. latest trade report, from which it will be seen that enquiry and clearances are at the lowest ebb for all branches of trade in Shanghai.
On behalf of all importers:
We are, &c.
DAVID SASSOON AND CO. (Limited). A. HOWARD, Manager,
E. D. SASSOON AND CO.
Enclosure 3 in No. 1.
I
Extracts from Messrs. Noël, Murray and Company (Limited's) Piece Goods Trade Report of April 30, 1914.
NOW, everybody seems to agree, that things are going from bad to worse, and it is to be hoped something will be done to attempt to check the ruining decline in the value of everything made of cotton and wool, that has been going on for so many
months.