January 14, 1952
To the Congress of the United States:
On January 14, 1950, pursuant to the provisions of the Rubber Act of 1948, I transmitted to the Congress my recommendations concerning the synthetic rubber industry in the United States, together with a report on the subject from the Assistant to the President. That report included a history of the synthetic rubber industry, an analysis of its current status, and a comprehensive review of the problems of disposal of the Government-owned plants. This message, therefore, is limited to consideration of the character and significance of important changes during the past two years.
Six months after my previous report on synthetic rubber was prepared, and one day after I signed the bill extending the Rubber Act of 1948 until June 30, 1952, North Korean communist forces crossed the 38th parallel in Korea. Less than six months later, when these invaders had been hurled back, Chinese communist forces crossed into Korea from Manchuria.
The communist aggression in Korea has demonstrated to the world beyond any doubt the true intentions of the Soviet leaders, and their willingness to use armed attack, if necessary, to accomplish their objectives. The Korean invasion has made it eminently plain that the entire free world lives in the constant danger of further communist aggression. United Nations successes in Korea have been great, but the threat of a third world war is still very real and very menacing.
To meet this threat, this nation, together with the other nations allied with us, has undertaken a vast preparedness program. This program involves raising and equipping promptly sufficient armed forces to resist aggression if it should come, and expanding our mobilization base so that we will be able to shift quickly to a full war footing if that should prove necessary. This involves, in turn, assuring an adequate and uninterrupted supply of the critical materials needed for defense production.
The problem is particularly acute in the case of rubber. Most of the world's natural rubber is produced in Southeast Asia where communist subversion and sabotage are now a serious problem. Communist invasion of these areas is an ever-present possibility.
A stockpile of natural rubber is a partial protection against loss of production in these areas. I am happy to report that in the past two years, despite communist activities in rubber-producing areas, natural rubber production has been maintained at high levels, and despite soaring world demand for rubber, we have made substantial progress in accumulating a natural rubber stockpile. Our minimum objectives will soon be met, and if international conditions do not worsen, it may be possible to begin soon to taper off our stockpile purchasing of rubber.
Our accelerated rate of stockpiling in the past two years has been made possible largely by the existence of our synthetic rubber industry. Government operation of the synthetic rubber plants over the past two years has been highly successful. Total production in Government-owned plants has been increased from an annual rate of 270,000 tons in January 1950 to a present annual rate of 850,000 tons, and we should be able to reach 950,000 tons within a few months. This is a remarkable record and reflects credit both on the Government officials directing the program and the private concerns reactivating and operating the plants for the Government.
In reviewing the Government's synthetic rubber activities, it is important to distinguish between GR-S, the general purpose rubber used chiefly in tires but also in many other products, and butyl, a special purpose rubber used primarily in inner tubes.
GR-S was being produced in Government-owned plants in January 1950 at an annual rate of 217,000 tons. In the spring of 1950, production was increased to meet rising demand, and following the Korean invasion, all stand-by facilities were reactivated and expansions of capacity of existing plants were undertaken. At present, Government production of GR-S is at an annual rate of 770,000 tons, and is expected to rise to an annual rate of 860,000 tons by the third quarter of this year.
During most of the past year and a half, because of the time required to reactivate stand-by facilities, it was not possible to increase production fast enough to meet rising demand. In recent months, however, production has kept ahead of demand and allocation controls over GR-S have recently been terminated. It is anticipated that production in 1952 will not only meet all domestic demands but will also provide a substantial margin for export, thus facilitating stockpile purchases of natural rubber.
Increased costs, particularly the high costs of feedstocks produced from alcohol which have been required to achieve the present levels of GR-S production, have necessitated increasing the price of GR-S from 18½ cents a pound to 26 cents in order to operate the GR-S facilities, as a whole, without loss.
Two technological developments have improved the ability of GR-S to compete with natural rubber. First, "cold rubber," a type of GR-S, which was a relatively new product two years ago, has proved to be superior to natural rubber in most tire treads. Second, it has been found that low-cost oil can be added, as an extender, in the production of GR-S, thus introducing important cost savings with no significant change in quality. Research investigations now in process promise further advances.
As a result of these technological developments, GR-S is in a better position to compete with natural rubber than it was two years ago. It is still probable, however, that GR-S could not compete for bulk uses with natural rubber offered at significantly lower prices over a considerable period of time.
Butyl production, in January 1950, was at an annual rate of 52,000 tons in the two Government-owned butyl plants. Present production is about 80,000 tons and capacity of the plants is being expanded to an annual rate of 90,000 tons by the middle of this year. Because of increased costs, the price was increased in December 1950 from 18½ cents to 20 3/4 cents a pound in order to permit continued operation without loss.
Demand for butyl has far exceeded production since Korea. This rising demand was the cumulative result of the high level of production of automotive tubes, the high price of natural rubber relative to butyl, and restrictions on the use of natural rubber. Growing recognition of the superiority of butyl over natural rubber for inner tubes, and the potential usefulness of butyl in nontransportation products, indicate that demand for butyl will probably continue to exceed capacity output of the two plants.
Research in butyl rubber has been entirely privately financed. A number of new applications for this rubber, now the lowest priced new rubber available, have been developed. In particular, research on all-butyl passenger tires has yielded very promising results which could result in a many-fold increase in demand for butyl.
The experience of the last two years reinforces the conclusions of the 1950 report, to the effect that butyl is in a strong position to compete with natural rubber.
Recommendations
The fact of open conflict and the demonstrated threat of further aggression, the fact that our stockpile goals have not yet been fully met, and the fact that we are fully utilizing the available capacity for producing synthetic rubber, require that we avoid actions which could interfere with continued production of synthetic rubber to meet all our needs. My recommendations are prepared with this objective in mind.
As I pointed out two years ago, difficult disposal problems result from the large number of plants in the GR-S segment of the Government synthetic rubber program. The possibility of a need for Government support of GR-S for security purposes in the event of a sharp decline in the price of natural rubber creates further problems. The 1950 report also pointed out that among the main advantages of Government ownership are the efficiencies and economies of operation of the entire GR-S industry as an integrated unit. These could probably not be fully maintained if the plants were owned by a number of independent companies. Disposal of the GR-S facilities might result in occasional losses of production because of the loss of coordinated operation of the GR-S and feedstock facilities and the loss of the flexibility of integrated operations. The possibility of such losses must be avoided under present circumstances, when maximum production is essential.
This factor is not present in the case of the two butyl facilities. Each of these facilities is a highly integrated plant, and disposal should involve no significant interference with plant operation.
One reason for disposing of the butyl facilities is currently more relevant than it was when the 1950 report was written. As noted above, the demand for butyl is considerably above the capacity of the existing plants. Additional butyl capacity would be highly advantageous. Although there is nothing in the present law to prevent private firms from constructing a butyl plant, they are reluctant to do so when it means entering into competition with the Government operating on a "no profit-no loss" basis. It would obviously be desirable to create circumstances which would stimulate private business interest in building additional facilities.
Two years ago I recommended that the Congress authorize transfer of the Government's rubber facilities to private ownership and recommended a disposal plan. It is still my belief that it would be in the national interest to have the authority to dispose of the synthetic rubber plants. For the reasons I have just given, however, and in consideration of the action taken by the Congress in June 1950 in extending the Rubber Act of 1948, it is my conclusion that disposal of GR-S facilities should be temporarily deferred. I therefore recommend that the Rubber Act of 1948, with respect to GR-S, be extended for another two years. With respect to butyl, I should like to suggest that the Congress give consideration to authorizing disposal of these plants according to the general principles outlined in my previous report, and to the termination of authority to require the consumption of butyl rubber. I believe, however, that under either alternative-disposal with security safeguards, or continued Government ownership--the national security will be fully protected. I have been so advised by the Secretary of Defense.
I have consulted the Chairman and members of the National Security Resources Board in the preparation of this report.
HARRY S. TRUMAN
NOTE: On June 23, 1952, the President approved a bill extending the Rubber Act of 1948 until March 31, 1954 (66 Stat. 154).
For the President's special message to the Congress on synthetic rubber, released on January 16, 1950, see 1950 volume, this series, Item 13. The report by John R. Stealman, The Assistant to the President, entitled "A Report to the President on the Maintenance of the Synthetic Rubber Industry in the United States and Disposal of the Government-Owned Synthetic Rubber Facilities," was transmitted with the message (see House Document 448, 81st Cong., 2d sess.).
To the Congress of the United States:
On January 14, 1950, pursuant to the provisions of the Rubber Act of 1948, I transmitted to the Congress my recommendations concerning the synthetic rubber industry in the United States, together with a report on the subject from the Assistant to the President. That report included a history of the synthetic rubber industry, an analysis of its current status, and a comprehensive review of the problems of disposal of the Government-owned plants. This message, therefore, is limited to consideration of the character and significance of important changes during the past two years.
Six months after my previous report on synthetic rubber was prepared, and one day after I signed the bill extending the Rubber Act of 1948 until June 30, 1952, North Korean communist forces crossed the 38th parallel in Korea. Less than six months later, when these invaders had been hurled back, Chinese communist forces crossed into Korea from Manchuria.
The communist aggression in Korea has demonstrated to the world beyond any doubt the true intentions of the Soviet leaders, and their willingness to use armed attack, if necessary, to accomplish their objectives. The Korean invasion has made it eminently plain that the entire free world lives in the constant danger of further communist aggression. United Nations successes in Korea have been great, but the threat of a third world war is still very real and very menacing.
To meet this threat, this nation, together with the other nations allied with us, has undertaken a vast preparedness program. This program involves raising and equipping promptly sufficient armed forces to resist aggression if it should come, and expanding our mobilization base so that we will be able to shift quickly to a full war footing if that should prove necessary. This involves, in turn, assuring an adequate and uninterrupted supply of the critical materials needed for defense production.
The problem is particularly acute in the case of rubber. Most of the world's natural rubber is produced in Southeast Asia where communist subversion and sabotage are now a serious problem. Communist invasion of these areas is an ever-present possibility.
A stockpile of natural rubber is a partial protection against loss of production in these areas. I am happy to report that in the past two years, despite communist activities in rubber-producing areas, natural rubber production has been maintained at high levels, and despite soaring world demand for rubber, we have made substantial progress in accumulating a natural rubber stockpile. Our minimum objectives will soon be met, and if international conditions do not worsen, it may be possible to begin soon to taper off our stockpile purchasing of rubber.
Our accelerated rate of stockpiling in the past two years has been made possible largely by the existence of our synthetic rubber industry. Government operation of the synthetic rubber plants over the past two years has been highly successful. Total production in Government-owned plants has been increased from an annual rate of 270,000 tons in January 1950 to a present annual rate of 850,000 tons, and we should be able to reach 950,000 tons within a few months. This is a remarkable record and reflects credit both on the Government officials directing the program and the private concerns reactivating and operating the plants for the Government.
In reviewing the Government's synthetic rubber activities, it is important to distinguish between GR-S, the general purpose rubber used chiefly in tires but also in many other products, and butyl, a special purpose rubber used primarily in inner tubes.
GR-S was being produced in Government-owned plants in January 1950 at an annual rate of 217,000 tons. In the spring of 1950, production was increased to meet rising demand, and following the Korean invasion, all stand-by facilities were reactivated and expansions of capacity of existing plants were undertaken. At present, Government production of GR-S is at an annual rate of 770,000 tons, and is expected to rise to an annual rate of 860,000 tons by the third quarter of this year.
During most of the past year and a half, because of the time required to reactivate stand-by facilities, it was not possible to increase production fast enough to meet rising demand. In recent months, however, production has kept ahead of demand and allocation controls over GR-S have recently been terminated. It is anticipated that production in 1952 will not only meet all domestic demands but will also provide a substantial margin for export, thus facilitating stockpile purchases of natural rubber.
Increased costs, particularly the high costs of feedstocks produced from alcohol which have been required to achieve the present levels of GR-S production, have necessitated increasing the price of GR-S from 18½ cents a pound to 26 cents in order to operate the GR-S facilities, as a whole, without loss.
Two technological developments have improved the ability of GR-S to compete with natural rubber. First, "cold rubber," a type of GR-S, which was a relatively new product two years ago, has proved to be superior to natural rubber in most tire treads. Second, it has been found that low-cost oil can be added, as an extender, in the production of GR-S, thus introducing important cost savings with no significant change in quality. Research investigations now in process promise further advances.
As a result of these technological developments, GR-S is in a better position to compete with natural rubber than it was two years ago. It is still probable, however, that GR-S could not compete for bulk uses with natural rubber offered at significantly lower prices over a considerable period of time.
Butyl production, in January 1950, was at an annual rate of 52,000 tons in the two Government-owned butyl plants. Present production is about 80,000 tons and capacity of the plants is being expanded to an annual rate of 90,000 tons by the middle of this year. Because of increased costs, the price was increased in December 1950 from 18½ cents to 20 3/4 cents a pound in order to permit continued operation without loss.
Demand for butyl has far exceeded production since Korea. This rising demand was the cumulative result of the high level of production of automotive tubes, the high price of natural rubber relative to butyl, and restrictions on the use of natural rubber. Growing recognition of the superiority of butyl over natural rubber for inner tubes, and the potential usefulness of butyl in nontransportation products, indicate that demand for butyl will probably continue to exceed capacity output of the two plants.
Research in butyl rubber has been entirely privately financed. A number of new applications for this rubber, now the lowest priced new rubber available, have been developed. In particular, research on all-butyl passenger tires has yielded very promising results which could result in a many-fold increase in demand for butyl.
The experience of the last two years reinforces the conclusions of the 1950 report, to the effect that butyl is in a strong position to compete with natural rubber.
Recommendations
The fact of open conflict and the demonstrated threat of further aggression, the fact that our stockpile goals have not yet been fully met, and the fact that we are fully utilizing the available capacity for producing synthetic rubber, require that we avoid actions which could interfere with continued production of synthetic rubber to meet all our needs. My recommendations are prepared with this objective in mind.
As I pointed out two years ago, difficult disposal problems result from the large number of plants in the GR-S segment of the Government synthetic rubber program. The possibility of a need for Government support of GR-S for security purposes in the event of a sharp decline in the price of natural rubber creates further problems. The 1950 report also pointed out that among the main advantages of Government ownership are the efficiencies and economies of operation of the entire GR-S industry as an integrated unit. These could probably not be fully maintained if the plants were owned by a number of independent companies. Disposal of the GR-S facilities might result in occasional losses of production because of the loss of coordinated operation of the GR-S and feedstock facilities and the loss of the flexibility of integrated operations. The possibility of such losses must be avoided under present circumstances, when maximum production is essential.
This factor is not present in the case of the two butyl facilities. Each of these facilities is a highly integrated plant, and disposal should involve no significant interference with plant operation.
One reason for disposing of the butyl facilities is currently more relevant than it was when the 1950 report was written. As noted above, the demand for butyl is considerably above the capacity of the existing plants. Additional butyl capacity would be highly advantageous. Although there is nothing in the present law to prevent private firms from constructing a butyl plant, they are reluctant to do so when it means entering into competition with the Government operating on a "no profit-no loss" basis. It would obviously be desirable to create circumstances which would stimulate private business interest in building additional facilities.
Two years ago I recommended that the Congress authorize transfer of the Government's rubber facilities to private ownership and recommended a disposal plan. It is still my belief that it would be in the national interest to have the authority to dispose of the synthetic rubber plants. For the reasons I have just given, however, and in consideration of the action taken by the Congress in June 1950 in extending the Rubber Act of 1948, it is my conclusion that disposal of GR-S facilities should be temporarily deferred. I therefore recommend that the Rubber Act of 1948, with respect to GR-S, be extended for another two years. With respect to butyl, I should like to suggest that the Congress give consideration to authorizing disposal of these plants according to the general principles outlined in my previous report, and to the termination of authority to require the consumption of butyl rubber. I believe, however, that under either alternative-disposal with security safeguards, or continued Government ownership--the national security will be fully protected. I have been so advised by the Secretary of Defense.
I have consulted the Chairman and members of the National Security Resources Board in the preparation of this report.
HARRY S. TRUMAN
NOTE: On June 23, 1952, the President approved a bill extending the Rubber Act of 1948 until March 31, 1954 (66 Stat. 154).
For the President's special message to the Congress on synthetic rubber, released on January 16, 1950, see 1950 volume, this series, Item 13. The report by John R. Stealman, The Assistant to the President, entitled "A Report to the President on the Maintenance of the Synthetic Rubber Industry in the United States and Disposal of the Government-Owned Synthetic Rubber Facilities," was transmitted with the message (see House Document 448, 81st Cong., 2d sess.).