Iron ore prices surged to near five-month highs on Monday after China announced the launch of a mega hydropower project in Tibet. The commodity has now risen for four consecutive weeks and is poised for its first monthly gain since January. Market optimism stems from recovering steel demand expectations and ongoing stimulus hopes, reinforced by government pledges to curb excessive competition and overcapacity in the steel sector.
Dalian Commodity Exchange’s September iron ore contract rose 2.08% to ¥809/tonne ($112.74), peaking at ¥819 – its highest since February 26. Singapore Exchange’s August contract climbed 2.81% to $103.60/tonne, reaching its highest level since February 27.
The colossal ¥1.2 trillion ($167 billion) hydropower complex, located in Tibet’s Himalayan region, will consist of five interconnected dams. Upon completion, it will become the world’s largest hydropower station. Beyond boosting China’s grid capacity and clean energy goals, the project is set to significantly increase demand for industrial materials like steel, cement, and glass. This initiative signals a shift in China’s growth strategy, using infrastructure spending to counterbalance weak private investment and slowing exports.
Specifically for iron ore, the dam’s steel requirements are projected to be 3-4 times greater than those of the Three Gorges Dam (currently the world’s largest at 22,000 megawatts). Atilla Widnell, Managing Director at Navigate Commodities, stated the news significantly benefits local steel markets, with iron ore and rebar futures reacting positively. Shanghai Futures Exchange steel contracts broadly advanced: rebar and wire rod each gained around 2%, hot-rolled coil rose 2.26%, and stainless steel increased 1.45%.
Following slightly better-than-expected Q2 economic data, China’s central bank kept benchmark lending rates unchanged. Traders and analysts note market attention is now focused on this month’s Politburo meeting, which will shape economic policy for the second half. Mysteel analysis indicates growing expectations for macroeconomic policy stimulus have lifted major steel product prices.
Improved steel sales margins prompted mills to raise blast furnace operating rates. The average blast furnace capacity utilization rate increased by 0.99 percentage points week-on-week during July 11-17.
Iron ore prices have steadily recovered in recent weeks, with Singapore futures last week surpassing $100/tonne for the first time since May. This rebound follows commitments from Chinese officials to address overcompetition and outdated capacity, with leaders emphasizing the continued importance of traditional industries.
Mysteel researcher Steven Yu (cited by Bloomberg) noted that after senior officials’ statements, many industries are experiencing an “anti-overcapacity wave,” driving price increases. Last week, the China Iron and Steel Association (CISA) convened meetings between major steel producers and industry ministry officials. Companies reportedly pledged to tackle “involution” (overcompetition eroding margins) and hinted at new regulatory tools to curb overcapacity, though details remain unclear.
Traders are closely monitoring follow-through demand from the hydropower project and potential additional infrastructure stimulus from Beijing. For now, China’s super dam announcement has injected renewed confidence into metals markets, offering a rare positive signal against an uncertain global economic backdrop.
