THE DISTILLERY: No iron forgery

China's all-powerful National Development and Reform Commission has accused the world's three big iron ore miners, two of which are Australian, of manipulating the iron ore price. This morning two distinguished business writers examine the claim in the context of not just the price spikes, which make buyers angry, but price plunges, which make sellers nervous.

Also in this smoky serving from The Distillery, the bizarre behaviour of equity markets gets an even closer examination from a senior columnist, while Aurizon has bagged BHP Billiton and a resource reporting veteran underlines its significance.

But first, The Australian's Barry Fitzgerald scours the news clippings from September to find evidence that China thought the big three iron ore miners had faked signals in the market to send prices tumbling to $US87 a tonne. There are none. But lo and behold when the price is high, ‘Argh, supply-side manipulation,' the Red Kingdom cries.

Remember when BHP Billiton beat China out of its index pricing system? The same pattern of complaints emerged then. When it was locked into prices that were too high, it complained. When the opposite was true, the message was ‘honour our agreement'.

"But the reality this time around seems to be that the Chinese are overstating the darkness that exists in the trading platforms for the simple reason that paying near $US150 a tonne for iron ore hurts. If the price back in September were to apply for a full year, the cost of iron ore imports would fall by almost $US50 billion. Who wouldn't love that kind of saving? But to lash out at the main suppliers without detail and lots of innuendo is not the answer. Bring forward legitimate beefs, and do everything possible to ensure the new pricing platforms are as transparent and reflective of supply and demand as possible.”

Business Spectator's Stephen Bartholomeusz, like Fitzgerald, looks back at the price plunge late last year to see market forces hard at work.

"If one looks back at what happened last year, when the iron ore price tumbled below $US87 a tonne in September before recovering sharply to around the $US150 a tonne level, it is pretty obvious that the price was being driven by the actions of the mills, not the iron ore producers. The price plummeted last September because of a confluence of influences. China's economy had slowed as its policymakers tried to deflate a credit-driven bubble in property; there were wobbles in the eurozone which also affected China's exports and there was a seasonal element which added to an excess of stocks. So the price dived. It rebounded because the steelmakers started buying again. Chinese iron ore imports were at record levels, for instance, in December.”

Indeed, Fairfax's Philip Wen also points out that China also has the capacity to influence prices by stockpiling to the hill. However, the real reason it's upset is that China's steel industry is "inefficient, over-capitalised and bleeding loses”.

There's a broader obvious irony that perhaps all these fine journalists wish to sidestep in order to be clear on the point and not succumb to tangential moments of hubris. The Distiller is not bound by such self-respect.

Iron ore, along with every other thing that you can buy, would be cheaper for China if the yuan were higher. While the NDRC's accusations against the big three miners are unconvincing, it's a simple matter of record that China manipulates its currency to the detriment of its importing capacity.

Meanwhile, The Australian's John Durie continues the discussion begun by Business Spectator's Alan Kohler and Fairfax Media's Malcolm Maiden about the disparity between the value of the stock market and our own internal instincts about the state of play.

But while Kohler broadened the discussion to include a number of global markets and Maiden focused solely on why the US market was booming so much more than the Australian market, Durie makes things even simpler.

With the Australian economy in such an obvious bind from so many sides, why is ours booming at all?

"Lesson No 1 in explaining the paradox of a booming stockmarket in a struggling economy is: there is no real correlation between the bourse and the economy. The economy may be booming and the stockmarket stagnant because the latter is based on relative valuations. If stocks are relatively expensive compared with bonds, houses or Holden motor cars then, other things being equal, they will remain stagnant.”

Durie then brings the reader in to the money printing narrative and the reality that the Dow Jones faces a huge correction; but it's instructive to remember that the sharemarket and the economy are not wedded to each other.

Meanwhile, The Australian Financial Review's Matthew Stevens has a great way of summing up the significance of Aurizon's latest deal with BHP Billiton.

"Whatever Lance Hockridge pays Paul Scurrah on behalf of the owners of Aurizon, he is worth it. Scurrah leads Aurizon's commercial and marketing arms and very late on Wednesday evening he completed a coup that just two years ago even his boss reckoned to be impossible. After a year of bargaining, he finally convinced BHP Billiton's Queensland coal twins, BMA and BMC, to sign new 12-year contracts covering up to 65 million tonnes a year of thermal and coking coal production. Aurizon (nee QR National) has always been BHP's Queensland coal umbilical. The BMA and BMC volumes now carried under 12-year contracts that expire in 2015 and 2016 account for nearly 35 per cent of Aurizon's Queensland coal freight business and for about 25 per cent of its national coal tonnages.”

Stevens writes later in an attached piece that the fact that the allegations of price manipulation at the big miners have come from the National Development and Reform Commission mean they require serious consideration. However, it's difficult to see that they have much basis, particularly from this end.

Back to economics for a moment, Fairfax's Malcolm Maiden makes the point the Victoria's economic growth has been stellar when you consider that it has outplayed New South Wales in four of the last five years, and those northern neighbours have the second largest Australian coal exporter.

The Australian's economics correspondent Adam Creighton ads to the message of his editor David Uren yesterday, that 457 visas are not a mechanism through which foreign workers take Australian jobs. Not only do they provide a safety valve for labour shortages that helps keep down inflation, as Uren points out, but they also spend some of their salary locally.

The problem facing new Premier Denis Napthine, writes Maiden, is the Victoria's manufacturing industry is hurting and it might be the only discernable way to boost the economy before the next election would be to borrow, which could risk Victoria's AAA-rating.

The Australian Financial Review's Chanticleer columnist Tony Boyd says the Business Council of Australia is working on a plan to fill the gap left by the mining construction boom, which is coming to an end. Their simple answer is infrastructure.

Meanwhile, Fairfax's Elizabeth Knight reports that the "buzz around the casino industry” is that a major international player could be looking to tender for the second Sydney casino licence.

And finally, The Australian's Glenda Korporaal looks at the ambitious, Chinese-funded project currently underway in the nations to its south and south-east.

"One of its megaprojects is the ambitious concept of a pan Asian railroad – a circular route of thousands of kilometres which, once finished, could help transform the region. It is starting in Kunming, in Yunnan province, and goes to Myanmar, south to Bangkok, with one line going south to Malaysia and then Singapore. Another line will go from Bangkok east into Cambodia, north through Vietnam to Hanoi, then through Laos and back to Kunming. The project is not quite as radical as it sounds as part of it will involve the upgrade of existing rail links and has a target completion date of 2015.”

To be honest, The Distiller was in Vietnam and Cambodia a few years ago and would love to go back. Knowing that a series of regional rail connections linking other countries in the area is underway is just gravy.