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Inside Business -

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(generated from captions) anyway. In WA, yes. We're always will go independent. They tend to be

accusing politicians of trying to

sell something so we've convinced

the politicians to sell themselves.

Auction themselves on eBay for

charity. Starts today. Goes for 10

days. People can pay for a ticket

the cricket with John Howard. days. People can pay for a ticket to

They do that kind of thing on SBS

but not on the ABC! Track the

progress of the auction and see who

gets paid the most. The annual

readers di sest who do we trust

has been published. I'm pleased to readers di sest who do we trust list

say that politicians are no longer

the least trusted profession in the

community. They have been beaten

worst point by telemarketers. community. They have been beaten for

Karen, you're not looking good!

Parliament resumes this week. And

I'm really looking forward to

in Tuesday and seeing how Beazley I'm really looking forward to tuning

looks with this 4.9% unemployment

rate and where he proposes to go

with the ACT's marriage Bill.

And that's Insiders for this week. 'Offsiders' at 10.30.

Alan Kohler and 'Inside Business'. Coming up next, G'day. Welcome to the program. Thanks Barrie. This week, negotiations on iron ore prices with the long-running and bruising now virtually over, and sellers how come the competing buyers are settling on the same figure - a 19% price rise? the most powerful figures We talk to one of in the global iron ore trade, biggest iron ore producer, CVRD. Jose Carlos Martins from the world's the Brazilian's plans Oh, and just what are on their home turf? to take on BHP Billiton and Rio And we take a close look with Deutsche Bank's Tom Murphy. at what is spooking the markets This program is captioned live. And in First Person - in babysitting. a mother's need sparks an invention think about is managing the growth - The first thing that we really supply of babysitters and nannies making sure that we have the right from parents. to meet the growing demand in commodity markets One of the more curious rituals of iron ore prices. is the annual negotiation Each year, BHP Billiton, Rio Tinto

Brazil's CVRD, and the biggest iron ore producer, key steel makers across the world sit down separately with the and hammer out new prices. they come up with the same price. And remarkably, across the board. Last year it was 71.5% increase This year it's 19%. iron ore division, I spoke to the head of CVRD's Jose Carlos Martins, the Melbourne Mining Club this week. after a speech to

in the world of iron ore. we have three dominant producers Is it like OPEC now? Far from it. by governments. OPEC is something built We are market - have nothing to do with governments.

It seems to be a cartel? Far from it. in the market, There is a lot of competition a lot of players. price rise So how come it's exactly the same

for all the producers each year?

a system in place It's because there is the benchmark system. which is called with one customer Normally one player fix a price all over the market. and this price spreads prices is established. It's a way a lot of other products' Even in the steel industry, rather in this way. the price is established the iron ore producers, But if there's competition between why is there no price competition? and Rio Tinto? Why don't you undercut BHP You have costs to cover. industry. Mining is a very complicated

for instance, price goes up. When you increase production, you don't have economies of scale. This is an industry where Nowdays, for instance, to supply customers, to increase production we are operating with higher costs. than other industries. It's a completely different system

No. with your competitors? Do you have meetings conveyed to them? So how is the benchmark price

You have to ask them. I don't know. price conveyed to our customers. What I think - it's the benchmark We set the price with our customers. Our customers accept the price. I don't care. Our competitors - It's their decision. is our customer accept our price. What is important for us is a marketing decision The consequence of it take a decision for themselves. that our competitors have to 19% this year. So 71.5% last year. the price of iron ore in two years? How do you justify almost doubling Have you looked at the price of oil? price of aluminum? Have you looked at Have you looked at price of copper? Who are you going to blame? it's face-to-face discussions. In case of iron ore, We don't hide behind the LME. We don't hide behind anything. is a face-to-face negotiation. We discuss with our customers and discuss the price we need. We go to our esteemed customer in middle of us. So we have no trading companies We don't have scalpers.

in middle of us. We don't have speculators raising the prices artificially. Hedge funds buying in the market, So it's the best way to negotiate. But there is some side effects is that we are exposed ask 71.5 % increase and it hurts. because we have to go there and It's more personal isn't it? Yes, it's personal. the best way of doing things. It hurts but it's not happy with that Our customers have the right to be we are going to supply more, but we are going to invest, they have the material they need. Can you give us some indication negotiations play out. of how those face-to-face Do people get angry? or is it polite? Do you storm out and slam doors How does it work? This is very interesting there for more than 30 years, OK? because these negotiations are I'm in the business for two years much years before I arrive and the system is there and it's high-level negotiation. analyse the market. People discuss numbers, around. There is a lot of information Months and months of discussions. two or three months. Normally discussions last different competitors. Different customers, Everybody talking to find out what would be the best price

for the market situation at that time and trust is very important because a customer has to understand that that price is good for him. He is paying a fair price that he will get more supply back. He will get more investment, more quality, more service. I think the benchmark system is based on confidence, is based on trust, is based on long-term relationship and iron ore makers, iron ore producers, they don't have anything else to sell iron ore besides steel makers, so this is our fate. We need to sell our product to the steel makers. Obviously this time around, unlike the Japanese and European and Korean steel makers, the Chinese don't think that the 19% increase is good for them. To what extent has that to do with the Chinese government or the steel mills in China? I think China is in a process of learning. They are becoming a market-oriented economy and the learning process is a very difficult process. They have been accepting the system. We sell to China several years so they have been accepting the benchmark system all of this year. This year, they would like to be the price setters but the process is very dynamic.

We have six, seven people all over the world negotiating with various customers. I never know with whom the price will be fixed and the system in China was a little bit not so fast. They had to caucus between them several times, the Chinese steel makers, each one have a different situation. Do you think they'll ever get to the point where they'll be big enough to be the price setters in China? Yes, I think they deserve it by the size they have. I think they deserve. I think they will, but they need to be faster in their decision making process. Will that be next year, do you think? Maybe. But one thing is for sure, they need to be more...

Their perception has to be more related to the world market because iron ore is a global market, it's not only China, it's global. So they have to adapt their perception, not only to the Chinese market, but the whole market and they have to be faster in their decision making process. Will you be looking for another price rise next year?

I don't know. It's too early to say. Too early to say. Do you think it will be difficult to get next year? Markets will say. In these negotiations lately, did China try to pick you off against each other? BHP, Rio and CVRD? Probably they tried to make the best business for them. I think it's fair. In our discussions, in our negotiations,

it's fair that the customer looks for a better price for him so it's market and you have to accept it but there is a strong situation which is the market condition. We have been running out of iron ore this year. No inventories, difficult just to supply. There is no iron ore. We have much more demand than the iron ore we can produce. This is the reality, so when you have a situation like that, it's quite impossible to play one supplier against the other because the reality is there. You look at the stock in the yards, you don't see any, any iron ore and nowadays with the Google Earth, all of these things, you are able to see how much stock everybody has. You have small operations in Australia. Do you intend to grow your businesses in Australia, perhaps in other things than iron ore? Maybe in nickel or manganese, coking coal? Definitely, Australia is a country that is a mining country, it's a very good environment for business. It's a low risk country, a lot of opportunities, and I think a lot of technology in mining around and CVRD is a little bit late on this so we opened up our office here last year for coal exploration mainly, but we intend it to grow for other businesses. Would you expand in Australia by takeovers? Our strategies mainly by greenfield operations, OK. Organic grow, but if the opportunities appear, why not? Greenfields takes a long time. Yes, but nowadays, to buy assets is very expensive so greenfield takes time but it's solid. You pay reasonable price for it and you built it brick by brick but if the opportunity appears, we will consider. And finally, do you think the Australian football team can beat Brazil at the World Cup in Germany?

It would be very difficult. It would be very difficult. I think Brazil team is better prepared for it

but Australia team play very tough but for sure, we are going to cheer for Australia, as long as we beat them. We'll leave it there. Thanks very much for joining us, Signor Martins. Thank you. Thank you. It's been another worrying and turbulent week on the markets and with a wrap-up of the key business news behind the ructions, here's Kate Tozer. Another ugly week on Wall Street has investors worried that the latest downturn is more than just a correction. The gloomy tone was set on Monday by Federal Reserve Chairman Ben Bernanke, who told a hearing in Washington

that while the US economy is slowing, the threat of inflation is still present. In a blunt statement, he said the Reserve will remain vigilant against inflation leading the market to fear another rate hike later this month. The increased world demand for crude oil and other primary commodities, together with the limited ability of suppliers to expand capacity in the short-run, has led to substantial increases in the global prices of those goods. Those price increases are a partial offset to the forces supporting global growth and are also a source of inflationary pressure. And there was further evidence of mounting global inflation pressures when interest rates were raised in South Korea, India, Thailand, Turkey and Europe this week. On Wall Street's close, the Dow Jones recorded its biggest weekly fall in more than 12 months. The S&P 500 slipped into negative territory. The Nasdaq sank to below where it started the year. Over the week, US stocks fell almost 3%. London's FTSE index slid close to 2% lower. In Germany, the DAX shed nearly 4%, or more than 10% for the month. A massive sell-off on the Japanese market saw the Nikkei index plunge more than 6.5%. The Australian market also took a battering, as Marcus Padley from Tolhurst explains. Bit of a shocker this week. Almost everything went down. The main concerns are about rising interest rates and rising inflation, but on Tuesday, the RBA left interest rates unchanged and then on Wednesday, we had the lowest unemployment number since 1976, which suggests that maybe the RBA should have put interest rates up or maybe will put them up a little bit sooner than we had otherwise expected. On the stocks front, a very poor performance from resources stocks this week. The worst performer perhaps was Zinifex. That fell after Morgan Stanley tried to place 5.4% of the company at $10.90. Looks like they struggled a little bit and by the end of the week, anyone who took stock in that placement was over $1 down.

The building stocks also took a bit of a thrashing this week. Admittedly a lot of them went ex-dividend but it is worth mentioning that they have got caught up in the wake of a fairly savage fall in US residential construction stocks. Some of those stocks are off over 40% since January. Meanwhile, Fairfax put out some earnings guidance which was a little bit below expectations. We also saw Channel Nine with 100 redundancies announced. The media made a lot of fuss about it but it really wasn't that important to the PBL share price, which didn't have too good a week anyway. On the bid front, there's talk that Tattersalls might well up their bid for UniTAB. And there is talk that SFE shareholders are going to push for a higher bid from the ASX even though the SFE board have already agreed to the bid. One shining light this week was Multiplex.

That went up after they won a court case in the UK

against one of the steel suppliers that helped delay the Wembley Stadium. And finally the Wallabies play England at rugby today. England's paying $4.40, so it looks like they're going to get a thrashing. And the Socceroos play Japan on Monday. The Socceroos are narrow favourites, paying $2.15 against Japan, paying $3. Winner of the week this week was Transfield Services, up 8% after a US$372 million acquisition. And loser of the week was IBA Health, down 14.5% after a share placement. As you've just heard, investors worldwide are continuing to look for the exits

spooked by the fear that the menace of inflation is returning. This week, local stocks suffered their biggest one-day fall since the September 11 attacks five years ago. After weeks of extremely volatile trading, concern is now mounting that the three-year bull market may have run its race. For his take on this new, riskier environment, I spoke to the Deutsche Bank's Tom Murphy. Well, Tom Murphy, the US market was down again on Friday to be 2.8% down for the week. The Japanese market was quite heavily hit this week. What's driving this weakness on global share markets? Alan, there are a few factors driving the weakness. I think the most significant one is that the levels of volatility or the choppiness of returns in markets

have, for quite a long time, been uncharacteristically low. Also, markets around the world are very fearful of interest rate moves and further rate moves by central bank authorities are concerning markets. And I guess the third thing that is impacting markets

is that there is an unwind of leverage and I would have to say the level of leverage in some markets has been excessive and the fact that that is being unwind and capital from developing markets is attracting money from emerging markets, that also is causing fluctuations. Let's just take them one at a time. How do you know that the volatility was unusually low, and how are you measuring what has been happening in the past month or so? Interestingly, you know, there is a measure in the United States called the VIX Index, which extracts the percentage of volatility, or basically measures the choppiness of returns which are inherent in stock options, which are US-traded stocks that have options listed on the Chicago Board of Options. And that particular exchange publishes this index which gives you a quantitative measure and typically, that measure, if you are looking back over sort of 5 to 10 years, is more in the area of 15% to 25% per annum. And the past couple of years it has been extremely low. Recently we saw levels as low as 10% per annum, which essentially means that markets have been going up in a relatively straight line. But that's a good thing, isn't it, Tom?

We like it when things - volatility is low. It's not characteristic of the underlying risk of markets though. If equities just rise in a very, very steady, straight line. I think it's a worry and I think it's an indication of something that's been inherent in this cycle which is a generation of investors who have expectations that are unrealistic and are creating asset bubbles in various pockets of markets around the world. Have rising interest rates now sparked this increase in volatility that you're talking about, and how far will interest rates go up, do you think? Alan, interest rates in the United States are going to go up two more times this year and I think they will almost certainly rise this month. I think rates in the United States have been extremely accommodative, especially a a couple of years ago when they were at 1%. Now that they are at 5%, they have probably slightly accommodative but certainly not restrictive. I think there is a little bit more room to go there, probably no more room to go here in Australia - one more hike at the most. So I think we are at the very end of the global tightening cycle. And you talked about the unwinding of leverage and risk around the world. Is that related to interest rates? And, if so, how far has that got to go? Interesting one, because the level of interest rates does, in fact, directly affect the leverage in the system, and the leverage in the system has been exacerbated by hedge fund activity, especially in commodities. And commodity prices being as high as they have been driven recently indicate that there is an expectation that global growth will remain at extremely high levels. I think global growth is likely to come off a little bit. Therefore, the hedge funds, who of course borrow to do what they do, have taken their money back out of the market, causing these great fluctuations and downward moves at a time when the global market is inherently in very good health. Well, does that mean there is a chance of a hedge fund bust? I believe there is, but there are now so many hedge funds with strategies that are quite different that I think it's unlikely you would get a major hedge fund bust, and if you did get one from a very large player, you would probably get the central bank authorities injecting liquidity to keep the system afloat. We know they did that in 1998. This correction is now about 7.5% in the Australian market over the past month or so. Do you think that it's now towards the end of that correction and are you recommending to clients that they start buying? This week we made that very recommendation and I think that markets, including Australia and also Japan, are now going to look forward at the profits in the next year or two, and the current pricing levels are already back to levels where sensible investing for the long term can actually produce very good returns. In the example of Japan,

which hasn't even started to tighten rates yet. They are at a turning point in the economy. It is an upward turn and when they start to tighten rates later in the year, it will be re-affirmation that things are actually good in Japan. Well, what sort of things are you suggesting your clients buy? I'm suggesting they buy - in Japan - equities that are related to the consumer cycle, not necessarily just exports, because a lot of the activity will be generated internally. And in Australia, I think there are opportunities all the way from banks to diversified resources. But on the resources side, I would stick with quality - the very big bulk commodity exporters, not the small players. So you are optimistic, but what's the main risk to your optimistic scenario, Tom? The worst thing that could happen would be if central bank authorities were perceived to be behind the game. In the United States, for example, if markets started to think that Ben Bernanke's group is actually not up to holding inflation back and, in fact, are what we call "behind the curve" and that they need though do more action in terms of tightening, like 50-point hikes, that would be a very bad scenario. We saw that in 1994, and that can cause long-term interest rates to rise a lot. I do not believe that will happen because I think the Fed, like the Reserve Bank here, is, in fact, operating very prudently. So are you in a believer in the long-term super cycles in commodities? I'm not. I don't think there is any such thing, but I think the industrial revolution that we're having today in China is not that different to the one we had in the United States 100 years ago or the one we had in Japan in the 1940s and 1950s. I think at times like this we do see commodities spike upward, but they return to a longer-term growth trend. We will leave it there. Thanks very much, Tom Murphy. Thank you, Alan. It is surely a very difficult political sell, in general, to claim that an inquiry into something is a bad idea. But that seems to be what the Leader of the Opposition, Kim Beazley, has decided to try. He, and everyone else for that matter, knows that asking Ziggy Switkowski and five others to report on the issues around nuclear energy by the end of the year can't hurt, and it certainly doesn't mean the Government wants nuclear power stations up and down the east coast. It wants, and is having, an inquiry into it. The most common response so far has been, "I'm not having a nuclear power station near my place. No way!" Which is fair enough,

and the chances of that happening while any of us are alive remain close to zero. Kim Beazley and other opponents of nuclear energy should read the terms of reference. The first of them is that the task force must examine the capacity for Australia to increase uranium mining and exports in response to growing global demand. In other words, this is mainly an inquiry

into the Labor Party's ban on new uranium mines. The issue of nuclear power stations in Australia is secondary. The task force has been asked to look into whether, in the longer term, they might become economically competitive and might reduce greenhouse gases. The answer to that will almost certainly be "they might". Now, the Government's political opponents might want to make a fuss about merely asking that question, but what they really should be focused on is arming themselves with good arguments by year's end about why Australia should not fully enjoy the benefits of possessing 40% of the world's uranium ore. They are about to get hit by a small but sharp truck named Ziggy. The issue of child care is high on the political and social agenda. The Federal Budget left campaigners disappointed, and a recently released government report found the families of almost 190,000 children are looking for extra care. One Melbourne mother has created a business to help fill the gap and the growth of the fledgling company has been exponential, showing just how many parents

are out there trying to find a babysitter. Tom, would you like some ham? Meg, would you like honey or peanut butter?

Delia Timms created her online business, Find A Babysitter,

out of her own frustration at trying to get access to care for her two young children, Meg and Tom. Find A Babysitter. Delia speaking. 40% of our customers are looking for daytime - part-time daytime care - and 40% of our customers are looking for after school care. So really, our customers tell us that there is this massive shortage of child care out there. Seven months of research went into the business before it was launched in July last year at a cost of around $25,000. It helped that husband Jeff Boness, an IT consultant, was able to set up and manage the site. We launched in Melbourne and thought we would stay in Melbourne for a few months and sort of pilot it, and actually, within the month, the site went to Sydney and then the next month it went to Brisbane and then to Perth and within six months, the site was national. It wasn't part of the initial business plan, and it really happened because carers would sign up on the site cause they'd see us,

and then once we had a good number of quality carers on the site, parents would see that and they'd join up, and I think it was driven by need.

We've had over 1,500 parents join our site and we currently have over 2,300 babysitters and nannies across Australia. In fact, we broke even within our first six months and since then, we've been making a good steady profit. The site has a database of carers, which can be accessed by parents who subscribe for a fee of $49.95 for 3 months, far less than the cost of using an agency, but slightly more than placing a classified ad. As part of our market research, we asked people about prices and that was one of the most difficult things to gauge - what was reasonable - because it didn't exist before. There are a few levels of vetting. Firstly, I review every profile of every babysitter that joins, and then the parents are expected to interview and select their own babysitter so they do all the vetting. The growth of the business has caused its own challenges. The first thing that we really think about is managing the growth - making sure that we have the right supply of babysitters and nannies

to meet the growing demand from parents. The second thing is really being able to innovate fast enough to meet the customer requirements. We get a lot of feedback, a lot of great ideas about how to enhance the site, so we're constantly updating the site to make sure that we include these enhancements. I officially work in the business about 15, 16 hours a week but the rest of the time that I'm not at the office, I work from home, you know, at least several hours a day. Because it's an Internet-based business, it's really running 24/7 and we monitor it nearly 24/7 except when we're asleep. We find a lot of parents are joining at night after their children go to sleep, so we find that we need to be on tap during those times. MARIACHI MUSIC PLAYS

Very occasionally, I get out and go for a walk by the beach with my iPod and listen to music without the children. We go out for coffee, take the children to the park. Jeff and I go out on a date once a fortnight and make sure that we time together alone, so that's a really crucial part of us being able to cope with our busy lifestyle.

We do often end up talking about the business, but in some ways, that's just part of our life. We're excited about it so we can't help but talk about it and so we kind of enjoy that too. It's much bigger than we anticipated, but its been a fantastic outcome.

It has also been much more manageable because it's so scalable Being an Internet-based business, despite the fact its taken off and gone national, and the numbers are so much bigger than we thought. We're still able to manage it with the two of us

and with my limited hours, juggling a family and work as well. This program is captioned live. Jayne Edwards reporting there. Transcripts of all today's stories and interviews will be available at: Thanks for your company. See you next week. Now it's back to Barrie and the 'Offsiders' team. Alan, thank you. Welcome to Offsiders.

Who's protecting the head in football? How is it that rugby league - the ultimate in contact sport - is building a better reputation than the AFL in protecting players from head-high hits? Closed Captions produced by Captioning and Subtitling International Pty Ltd Now, almost without exception, the players and the ex-players in AFL are saying, "Don't go soft, it's only a bump. "Using the hip and shoulder is a legitimate part of the game." But surely the issue is not whether you should be allowed to use the hip and shoulder but whether you can use the hip and shoulder

to hit an opponent in the head. Let's hear from Collingwood coach Mick Malthouse and Brisbane coach Leigh Matthews.

My view is that anything that

touches that part of the body

through here , front-on, should

through here , front-on, should have another chapter. And it should be -

the starting point should be six

weeks. But when you look at other

tribunals and I think I'm going to

talk about rugby union and rugby

league, they're six to eight weeks