China's 1.2 trillion yuan mega-dam project lifts metals markets, but not a quick fix for glut
Ferrous markets rallied sharply this week following Saturday's (Jul 19) groundbreaking ceremony, attended by Chinese Premier Li Qiang.
Iron ore futures for October delivery on the Singapore Exchange surged as much as 4.9 per cent this week, while Shanghai steel futures jumped almost 4 per cent on Thursday, versus pre-announcement levels.
As the world's largest and most costly hydropower dam, the Yarlung Tsangpo River project's output will treble that of the Three Gorges Dam and generate an estimated 300 trillion watt-hours of electricity annually, supporting power demand in Tibet and the rest of China.
The annual electricity generation would be equal to more than five times the amount of electricity consumed by Singapore in 2024.
According to estimates by Chinese ferrous markets trade monitor LGMI Steel, the dam is expected to drive six million tonnes of steel consumption – far surpassing the Three Gorges Dam's steel usage of 70,000 tonnes – due to the complex Tibetan Plateau landscape and harsher climate conditions that require greater steel intensity.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Macquarie Group's commodities strategist Florence Sun estimated that steel demand could be around three to five million tonnes, featuring a mix of rebar and various special steels, given the unique geographical environment. She highlighted that the cost of the new dam would be 4.5 times that of the Three Gorges Dam.
While the project will generate substantial demand for ferrous metals such as iron ore and steel, its five-to-seven-year construction timeline on the Yarlung Zangbo River means the impact will be gradual rather than immediate, given staggered procurement over the build period, noted Edward Meir, senior metals analyst at Marex.
He expects steel and cement to see the biggest demand boost from the project, with modest growth of copper demand for power transmission.
Meanwhile, a struggling construction sector continues to drag on ferrous metal demand, said Sabrin Chowdhury, head of commodities at BMI.
'More such projects will be necessary to bring about a sustained rise in metals demand going forward,' she noted.
Similarly, in a note on Tuesday, Citi Research highlighted the long construction timeline and limited front-loaded demand, with metal usage to be spread across many years. However, the project still reflects China's medium to long-term plans for large-scale, long-distance power transmission infrastructure.
'Although precise copper and aluminium consumption from the associated transmission lines remains unclear, ultra-high voltage corridors, especially aluminium-intensive, will be needed to deliver power to eastern and southern China,' wrote the team.
Power-grid related metals would thus see continued demand growth over the coming years, noted the team.
'Anti-involution' (fan nei juan) rhetoric
Beyond the mega-hydropower project, the recent ferrous complex rally has been fuelled in part by China's 'anti-involution' campaign targeting industrial overcapacity. Over the past fortnight, iron ore, coking coal and coke have all posted gains as markets anticipate supply-side reforms.
Citi Research explained in a Jul 15 note: 'The anti-involution campaign aims to break the cycle of destructive price wars and chronic overcapacity that have plagued Chinese industry profitability.' This policy push has drawn comparisons to the 2016-2017 supply reforms that sparked a historic iron ore rally.
China's ferrous complex has been struggling with a persistent supply-demand imbalance, particularly as property sector weakness continues to weigh on demand for construction materials, while supply expands amid damaging price wars.
With production capacity still outstripping demand, traders appear to be pricing in expectations that Beijing will force meaningful capacity rationalisation.
However, the research team does not expect a repeat of the 2016-2017 playbook, given different fundamentals. 'We see the current rally in the steelmaking ingredient as unsustainable and short lived.'
China's policymakers have been advocating a more measured approach to urban planning and upgrades, which are expected to be less steel-intensive than the full demolitions and property upcycles that spurred the previous ferrous rally.
The 'anti-involution' rhetoric has been emphasised directly by China's top leaders, underscoring the country's urgent need to break out of the deflationary cycle.
In a meeting chaired by President Xi Jinping on Jul 1, the Central Finance and Economic Affairs Commission said Beijing needed to 'guide enterprises to improve product quality and promote the orderly exit of outdated production capacity'.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
an hour ago
- Business Times
Japan expects only 1% to 2% of $550 billion US fund to be investment
[TOKYO] Japan expects only 1 to 2 per cent of its recently agreed upon US$550 billion US fund to be in the form of actual investment, with the bulk of it being loans, according to the nation's top chief negotiator Ryosei Akazawa. At the same time, Tokyo would save roughly 10 trillion yen (S$87 billion) through lower tariff rates in its deal with America, he said. The US$550 billion investment framework will be a combination of investments, loans and loan guarantees provided by financial institutions backed by the Japanese government, Akazawa said on public broadcaster NHK on Saturday (Jul 26) night. Of the total, investment would be worth 1 per cent or 2 per cent and the US and Japan would split the profits of that investment at a ratio of 90-10, he said. Japan had originally proposed a 50-50 ratio, he added. The fund is a centrepiece of the deal announced by the two sides that will impose 15 per cent tariffs on Japanese cars and other goods. But the details given by Akazawa suggest the Japanese may end up giving up much less than at first glance. The comments come as officials from countries with deals with the US sift through the terms to explain to the public what they entail. 'It's not that US$550 billion in cash will be sent to the US,' Akazawa said. 'By letting the US have 90 per cent of the profits rather than 50 per cent, I think Japan's loss will be at most a couple of tens of billions of yen. People are saying various things, such as 'You sold out Japan', but they are wrong.' For the loans provided through the programme, Japan will simply be collecting the interest payments, and for the loan guarantees, if nothing happens, Japan will also be just collecting fees, Akazawa said. 'For that part, Japan's just making money,' he said. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Akazawa also clarified that the investment programme will not be only supporting Japanese and US firms. As a potential example, he cited a Taiwanese semiconductor firm building a factory in the US. 'We'd like to put the US$550 billion in place during President Trump's term,' Akazawa added. Further details of the implementation of the US-Japan deal remain unclear, including when the new tariff rates would take effect and when the new investment vehicle would kick off. There's been no joint document signed by both sides for the deal, although the White House has published a fact sheet. 'If you say something like, 'Let's create a joint document,' they will say, 'We will lower tariffs after the document is created,'' Akazawa said. In order not to lose time, 'we will demand that they issue an executive order to lower tariffs as soon as possible, regardless of a document'. Last week, Akazawa said that he expects universal tariffs on Japan's shipments to be lowered to 15 per cent on Aug 1, while he said he wanted the car tariffs to be cut to 15 per cent as soon as possible without specifying a date. The Trump administration has touted the deal with Japan as a potential model for others. On Sunday, the US and European Union agreed on a deal that will see the bloc face 15 per cent tariffs on most of its exports, with the EU pledging to invest US$600 billion in the US. BLOOMBERG
Business Times
an hour ago
- Business Times
Asia: Most markets rise, euro boosted after EU strikes US trade deal
[HONG KONG] Most stock markets rose with the euro on Monday after the European Union and United States hammered out the 'biggest-ever' deal to avert a potentially damaging trade war. News of the deal, announced by Donald Trump and European Commission head Ursula von der Leyen on Sunday, followed US agreements last week, including with Japan, and comes ahead of a new round of China-US talks. Investors were also gearing up for a busy week of data, central bank decisions and earnings from some of the world's biggest companies. Trump and von der Leyen announced at his golf resort in Scotland that a baseline tariff of 15 per cent would be levied on EU exports to the United States. 'We've reached a deal. It's a good deal for everybody. This is probably the biggest deal ever reached in any capacity,' Trump said, adding that the levies would apply across the board, including for Europe's crucial automobile sector, pharmaceuticals and semiconductors. Brussels also agreed to purchase 'US$750 billion worth of energy' from the United States, as well as make US$600 billion in additional investments. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up 'It's a good deal,' von der Leyen said. 'It will bring stability. It will bring predictability. That's very important for our businesses on both sides of the Atlantic.' The news boosted the euro, which jumped to US$1.1779 from Friday's close of US$1.1749. And equities built on their recent rally, fanned by relief that countries were reaching deals with Washington. Hong Kong led winners, jumping around one per cent, with Shanghai, Sydney, Seoul, Wellington, Taipei and Jakarta also up, along with European and US futures. Tokyo fell for a second day, having soared about five per cent on Wednesday and Thursday in reaction to Japan's US deal. Singapore and Seoul were also lower. The broad gains came after another record day for the S&P 500 and Nasdaq on Wall Street. 'The news flow from both the extension with China and the agreement with the EU is clearly market-friendly, and should put further upside potential into the euro... and should also put renewed upside into EU equities,' said Chris Weston at Pepperstone. Traders are gearing up for a packed week, with a delegation including US Treasury Secretary Scott Bessent holding fresh trade talks with a Chinese team headed by Vice Premier He Lifeng in Stockholm. While both countries in April imposed tariffs on each other's products that reached triple-digit levels, US duties this year have temporarily been lowered to 30 per cent and China's countermeasures slashed to 10 per cent. The 90-day truce, instituted after talks in Geneva in May, is set to expire on Aug 12. Also on the agenda are earnings from tech titans Amazon, Apple, Meta Microsoft, as well as data on US economic growth and jobs. The Federal Reserve's latest policy meeting is expected to conclude with officials standing pat on interest rates, though investors are keen to see what their views are on the outlook for the rest of the year in light of Trump's tariffs and recent trade deals. The Bank of Japan is also forecast to hold off on any big moves on borrowing costs. AFP
Business Times
an hour ago
- Business Times
Trade talks with US in trouble as Thai-Cambodia conflict escalates
[BANGKOK] After months of uncertainty over the tariff fate imposed on its exports to the US, a deadly border clash between Thailand and Cambodia has now added fresh geopolitical risk to an already tense trade standoff as Bangkok scrambles to avoid punishing new duties. Fighting broke out on Jul 24 along the Thai-Cambodian border, killing at least 32 people and displacing over 200,000 civilians. The violence comes as Thailand struggles to finalise a trade agreement with Washington, even as regional peers like Indonesia, Vietnam and the Philippines have secured deals that cap US tariffs at 19 to 20 per cent. Both Thailand and Cambodia, which run sizeable trade surpluses with the US, face tariffs of 36 per cent on their exports to the American market starting Aug 1 if no deal is struck. For Thailand, one of the most export-reliant economies in the region, such a steep rate – among the highest globally – would deal a heavy blow to its already faltering economy. US President Donald Trump on Saturday said both sides had agreed to a ceasefire, following calls with Cambodian Prime Minister Hun Manet and Thailand's acting Prime Minister Phumtham Wechayachai. He added on Truth Social: 'They are also looking to get back to the 'Trading Table' with the United States, which we think is inappropriate to do until such time as the fighting STOPS.' Although fighting continued, both sides reportedly agreed to let Malaysia, Asean's current chair, mediate the conflict. According to reports, the two prime ministers are expected to travel to Malaysia on Monday for initial talks. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up Growth on the line Economists had already projected GDP growth of less than 2 per cent this year under a best-case scenario of 10 to 20 per cent US tariffs. That forecast is now expected to be downgraded to below 1 per cent if the full 36 per cent rate takes effect. Thailand's economy remains heavily export-driven, recording around US$300 billion in exports last year. The US accounted for 18 per cent of those shipments – one of the highest shares in Asean, behind only Vietnam and Malaysia. During the first six months of 2025, Thailand's exports grew 15 per cent year-on-year, with much of that attributed to front-loading by US clients. Exports to the US were up 41.9 per cent in June. Thailand's second main engine of economic growth is tourism, a sector now facing fresh headwinds as a sharp drop in Chinese visitors, spooked by security concerns, has been further compounded by the border conflict. The kingdom's tourism arrivals in the second quarter fell 12 per cent year on year, after falling 5 per cent in Q1 of FY2025, driven by weakness from North Asia, Southeast Asia, the Middle East and China (down 40 per cent), according to government figures. Arrivals are expected to reach 32-33 million, compared with 35 million in 2024. Sluggish domestic factors And unlike many neighouring countries, Thailand's domestic consumption remains sluggish, crippled by high household debt (88 per cent of GDP), which cuts into spending. 'If you cannot improve your competitiveness in the export sector, and you have high household debt, it constrains your ability to build your economy through domestic channels because already people have to pay a lot of their incomes to service their debt,' said Kim Eng Tan, Senior Director for Asia Pacific sovereign ratings at S&P Global Ratings, at a recent Bangkok conference. While Thailand has a well-diversified range of export items, including automobiles and auto parts, agricultural commodities, processed foods, electrical appliances and electronics, it has lagged in moving up the value-added ladder in electronics, nowadays the main driver of export success. In this sector Thailand already faces stiff competition from Asean neighbours, which now look like they will face lower tariff rates in the important US market. 'The impact of tariffs on Thailand will actually depend on the tariffs imposed on its competitors,' said Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings, speaking at the same event. Most of the Asean economies are competitive in the US market, so it matters less how competitive Thailand is compared to US factories – which are unlikely to reopen – and more how it stacks up against other Asean exporters. Thailand is also competing with China in the US market. 'A lot depends on the tariff rate on China as it is Thailand's main competitor in the US market,' said Kirida Bhaopichitr, Research Director at the Thailand Development Research Institute. 'China is Thailand's main competitor in 18 of the top 20 Thai exports to the US,' she pointed out. The final tariff rate on China is expected to be announced on Aug 11. Political risks Thailand's future efforts secure a deal with the US are further complicated by its own political disarray, which the conflict with Cambodia has added to. Thai Prime Minister Paetongtarn Shinawatra was suspended from her post by Thailand 's Constitutional Court on Jul 1, after a supposedly private conversation with former Cambodian leader Hun Sen was leaked, in which she called him 'uncle' and criticised the Thai commander of the border region. Paetongtarn is the daughter of Thaksin Shinawatra, a former prime minister and billionaire businessman once known to have close personal ties with Hun Sen. Thailand's political scene has arguably been shaky for the past two decades, with much of the divisiveness centered around power struggles between powerful politicians, such as Thaksin, and the elites identified with royalists, the military and entrenched business groups. 'We have to wait for a government that is able to get its policy vision lengthened to the extent that it is able to implement polices to deal with some of the problems,' said S&P's Tan. He added, 'But this development (US tariffs) is not likely to change the metrics in such a way that we may have to change our outlook, because overall the Thai metrics are still quite resilient. But it is not helpful.'
