China will intervene in the pricing of building materials when reconstructing those areas damaged by the May 12 earthquake.
The government will limit profit margins and set guideline prices on materials such as tents, steel, cement, glass and bricks to secure stable costs, the National Development and Reform Commission said on its Website.
Local governments have not been allowed to issue price increase measures recently and pricing authorities are forbidden to charge inordinately for disaster-relief products.
Anyone involved in hoarding, price-gouging, spreading rumors or violating price intervention policies will be severely punished. The commission has also established a 24-hour hotline (12358) to handle complaints about price-gouging.
Sichuan Province has sent out 12 teams to monitor market prices and so far more than 60 price gouging violations have been discovered, Li Chengyun, the deputy governor of the province, said yesterday.
“We have also punished the people involved in another 96 cases of market violations,” he said.
Li said the provincial supervision department was investigating whether people were misusing victims’ tents after media reported that some government officials had arranged for relatives to reside in the tents.
“We have punished four Party officials in Dujiangyan,” Li said.

By Tom Miles and Miranda Maxwell

HONG KONG/SYNDEY (Reuters) - A proposed $3.2 billion tie-up of two Australian iron ore miners raises the stakes for Chinese commodities trader Sinosteel, which covets both.

China’s roaring demand for steel has set the iron ore market alight, driving up prices and stirring interest in resource-rich areas.

Two of the biggest beneficiaries are Midwest Corp (MIS.AX: Quote, Profile, Research) and Murchison Metals Ltd (MMX.AX: Quote, Profile, Research), which are battling to lead the development of Western Australia’s Yilgarn iron ore province and weaken the dominance of BHP Billiton (BHP.AX: Quote, Profile, Research) and Rio Tinto (RIO.AX: Quote, Profile, Research), which produce from the Pilbara region further north.

Sinosteel, looking to seize the opportunity, is bidding for Midwest. But Murchison threw a spanner in the works on Monday by negotiating a friendly tie-up with Midwest that would leave the Chinese firm, a 20 percent Midwest shareholder, with a measly 10 percent stake in a combined company.

But few market watchers think that will be the end of the story.

“We believe Sinosteel will not simply abort its bid for Midwest,” Stephen Gorenstein, an analyst at Goldman Sachs JBWere, said in a note to clients. “Its options include coming back with a superior cash bid or waiting on the sidelines and potentially making a bid for the merged entity.”

A marriage of the two leaders in the region was bound to happen, experts say, since they will share railway and port infrastructure and could cut costs by merging adjacent projects.

Midwest’s shareholders will vote on the deal 28 days after a scheme of arrangement document for the merger is issued, giving Sinosteel four weeks to intervene.

IN CHINA’S SIGHTS

Murchison’s move has upped the ante after it failed to snare Midwest with a A$748 million all-stock offer late last year.

Midwest then rejected a takeover proposal from Sinosteel, which turned hostile with a bid of A$5.60 a share before finally winning the recommendation of Midwest’s board with an offer of A$6.38, conditional on getting 50.1 percent acceptance.

Midwest shares closed at $7.03 on Tuesday, a price that puts Sinosteel’s offer in the shade and implies investors do not expect it to trump the merger terms, equivalent to A$7.36 a share at the market close on Tuesday.

A sticking point in Sinosteel’s approaches to Midwest has been David Law, a Malaysian board member who holds 13.3 percent of Midwest and who, according to media reports, was keen to avoid incurring a large tax liability by selling.

The reverse takeover format of the merger proposal would overcome that objection by having Midwest absorb Murchison.

But Sinosteel cannot afford to let go. And it has an ace in its pack: a joint venture with Midwest, which has said China’s investment is critical to the development of its major projects.

“I struggle to see how you could execute a deal with an unhappy joint venture partner,” said an investment banker who declined to be identified due to the sensitivity of the issue, referring to Sinosteel. “This is a last ditch attempt by Murchison.”

Another option would be for Sinosteel to bid for Murchison, in which it already owns 2.4 percent.

Sinosteel approached Australian authorities with a bid for all of Murchison earlier this year but was one of around a dozen firms that had to withdraw a takeover application as officials tightened rules on foreign investment, another banker said.

“At some point, you start to develop a level of discomfort. Given the amount of deals China has done into Australia, I think we’re getting there,” said a Hong Kong-based investment banker, who like the other banking sources did not want to be identified for commercial reasons.

But Australia has welcomed investments that will help develop its resources and China desperately needs iron ore, leading it to put higher valuations on lower quality ores than other buyers.

Murchison thus appeared to skew its attractiveness further towards China by saying on Tuesday that its Jack Hills project had 13 percent more high-quality ore than thought but five times as much low-grade ore, making it a much bigger, but higher-cost, project.

But Jack Hills is being mined by Crosslands Resources Ltd, a joint venture between Murchison and Mitsubishi Corp (8058.T: Quote, Profile, Research) of Japan, which is also keen to secure iron ore supplies.

“This is critically poised at the moment,” said one banker. Will this turn into China Inc versus Japan Inc? Who knows?”

He said the deciding factors in the race to build a 30-40 million tonne producer might turn out to be neighboring miners such as Mount Gibson Iron (MGX.AX: Quote, Profile, Research) and Gindalbie Metals Ltd (GBG.AX: Quote, Profile, Research), whose shares rose 10 percent on Tuesday.

Both are widely thought to be in China’s takeover sights.

World’s sixth largest steel maker Tata Steel will begin construction work at its proposed 6 million tonne steel plant at Kalinganagar in Orissa in the next two months, a senior company official said.

“Pre-fabrication work has already started while actual construction will commence in two months time-frame,” Tata Steel’s Chief of Corporate Communication, Sanjay Choudhry said.

The preparatory work including soil testing, site clearing and fabrication of the steel rolling mill is being carried out, he added.

Tata Steel has been planning the greenfield project in Orissa at an estimated investment of about Rs 22,000 crore since 2004 but the slow pace of acquiring land and environmental clearances delayed it.

The company needed about 3,200 acres for plant’s construction while another 400 acres for its rehabilitation colony. The land has been acquired. The company claims to have shifted 700 families out of the total 1,100 falling in the purview of its plant site to its newly-built rehabilitation colony.

The company has also placed work orders for purchasing machinery and equipments including blast furnace, sinter plants and slab caster for its Orissa unit.

Post-completion of the plant’s construction, the steel major plans to commence commercial production in two phases of 3 million tonne each in next 36-40 months.

Tata Steel also proposes to set up two greenfield steel projects of 5 million tonne and 12 million tons capacity each in Chhatisgarh and Jharkhand also.

Tremor of the May 12 earthquake is more likely to be felt in macroeconomic regulations as inflation continued to hover above 8 percent in April.
“People are assessing the impact of the quake, but life is priceless,” said Zhuang Jian, senior economist with the Asian Development Bank (ADB) in Beijing.
But he added that while the quake caused extensive casualties and damage, it will not shake the overall development of the national economy. “The overall impact on gross domestic product (GDP) growth won’t be very big.”
Agreed Liang Hong, economist with the Goldman Sachs Asia in Hong Kong. “A severe natural disaster of this magnitude will likely have a negative impact on the real economy, but it’s likely to be limited and short-lived,” she said in a research note.
Sichuan province constitutes about 4 percent of the national GDP and its industrial output accounts for only 2.5 percent of the national total.
\\The hardest hit counties are mostly in the remote mountain areas. The quake-induced short-term loss of production is thus likely to be very limited, she said.
The reconstruction work after the quake is expected to contribute to GDP, investment and consumption growth, further mitigating the impact of the quake on economic growth.
But the quake may mount more inflationary pressures, which is a bigger concern and requires tighter policies, said analysts.
In April, the consumer price index (CPI), the key gauge of inflation, rose 8.5 percent, second highest in 12 years. The producer price index, a leading indicator of inflation, rose 8.1 percent in April, the ninth consecutive month that it increased.
Analysts said it could take about six months for producer price rises to be transferred to the consumer price zone. Therefore prices in the second half of the year may not ease significantly, as some economists had anticipated.
The ample liquidity in the market will worsen the situation, said Sun Lijian, economist with Fudan University.
Meanwhile, China’s imports of major commodities such as oil and raw materials will add to domestic inflationary pressures.
The central bank had raised the bank reserve requirement ratio shortly after the CPI figure was released last Monday, pointing to the urgency of controlling prices.
Since Sichuan is a major rice producer, the quake may intensify fears of food price inflation, especially against the backdrop of global rice price rise, said Sun Mingchun, senior economist of Lehman Brothers Asia.
The severely damaged transport links could make things worse. “There could be renewed pressures on food inflation because of Sichuan’s relative importance in agricultural production and the damage to the transportation system,” wrote Goldman Sachs’ Liang.
Given the April inflation figure, people are concerned the current monetary policy may not be tight enough and some are arguing for another increase in the interest rate.
“Inflation is a very serious problem and will hurt the Chinese economy,” warned Chen Gong, chief economist and chairman of Beijing-based Anbound Consulting.
But by using the reserve requirement ratio as a tool to restrict liquidity, the central bank seems to be reluctant to raise the interest rate, analysts said.
“Policymakers try to strike a balance between controlling inflation and maintaining sound economic growth,” Chen said. “It’s a tough goal.”
Whether or not to raise the interest rate, however, does not depend purely on domestic factors. Policymakers must take into account the condition of the US economy and the Federal Reserve’s interest rate cuts since a widening of the gap between Chinese and US interest rates will lead to inflow of speculative money, said Zhu Baoliang, senior economist with the State Information Center.
Some economists also warned the US economy may continue to sink deeper, dragging down the world economic growth and demand for Chinese exports.
“If policymakers rush to raise the interest rate now, they will be left with less room later if the Chinese economy slows,” ADB’s Zhuang said. (Source: China Daily）