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China’s Mega Dam Sparks Steel Price Surge and India’s Security Fears

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The world’s largest hydropower dam-in-the-making from China has been spurred onto a tumultuous ride over iron ore and steel prices by announcing the launch this year of its mega dam in Tibet. India has heard strong environmental and geopolitical risk alarms because of that.

The project, termed “the project of the century,” was initiated by the Chinese Premier Li Qiang over the weekend. The project on the Yarlung Tsangpo River is set to build a five-tier dam with a capacity to generate 300 billion kilowatt-hours annually and greatly increase demand for construction material, including steel, cement, and glass, among others. It is also one of China’s wider strategies to revive its flailing construction sector and meet its carbon neutrality targets.

Iron ore increased nearly 3% just after the announcement and was close to $104/ton in Singapore. Shanghai rebar futures climbed to their highest level in four months, with metals such as copper, zinc, and aluminium also increasing in price on the London Metal Exchange. According to Bloomberg, major Chinese steelmakers also met with government officials to discuss curtailment of overproduction and reforming competitive pressures in the sector.

Concerns have risen in New Delhi over the fact that the dam site was more than 1,500 kilometers deep inside Tibet but only within a close range of India’s Arunachal Pradesh. India’s foreign ministry formally notified that it had objected to the project because it threatens downstream water flow in the Brahmaputra basin. “We will keep on monitoring this and will take necessary steps to protect our interests,” said ministry spokesperson Randhir Jaiswal.

Arunachal Pradesh Chief Minister Pema Khandu even went further, dubbing the project a “ticking water bomb”, warning that this could be used as a strategic weapon by China. “This poses a bigger threat than even China’s military,” Khandu said and called for urgent investment in hydropower infrastructure in India as a defensive strategy.

China says it has put in place environmental safeguards, while global NGOs warn that this dam could destroy fragile ecosystems in the Himalayas and affect millions downstream within India and Bangladesh. What remains undisclosed is the full dimensions of environmental degradation and displacements.

Before the two countries resumed some formal discussions lately to stabilize relations based on the continued border tensions, water security has now emerged as a new flashpoint. Yet trust remains elusive.

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