Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Development of China’s scrap industry is important for the sustainability of the country’s steel industry. There is an urgent need to promote the scrap industry through policy support, tax adjustment and formulation of new standards for import and export of scrap, said Cao Zhiqiang, Chairman of Valin Group.


Cao Zhiqiang said China’s scrap recycling is in the primary stage and is marred by the presence of small-scale recyclers with outdated and backward technology, which reduces scrap utilization compared to developed countries. Zhiqiang put forth a five-prong suggestion for developing China’s steel scrap industry: 


Accelerate scrap recycling system

Scrap should be treated as a strategic resource as is the case in Japan. Zhiqiang suggested setting up special agencies to formulate scrap-related policies. Better organisation of market participants, development of integrating scrap industry and institutions and better communication and cooperation with steelmakers leading to a perfect industrial chain with immensely help the industry. 


He also called for improved scrap pricing mechanism, including the listing of scrap futures contracts which will provide cost-hedging means for scrap companies and establishment of a scrap resource database for China.


Reforms in tax system

Excessive VAT tax on scrap processing companies, inconsistent income tax calculation and verification as well as preferential policies in different regions is hurting the scrap industry.


Supervision and implementation of standards

Proper classification of scrap steel products to promote recycling combined with strict environmental protection is required in China. Formulation of standards for imported scrap, promotion of high-quality imported scrap steel and restriction on import of low grades scrap steel is needed. 


Liberalization scrap steel import policy

Imported scrap steel can supplement China’s inadequate domestic resources. As in developed countries scrap steel should be treated as raw material for smelting and be removed from the government’s restricted goods list to expand scrap steel’s supply channel. The government should also put in place export restrictions on scrap steel to avoid the outflow of high-quality scrap at low prices.


Research on use of scrap steel 

Steelmakers and research institutions should encourage theoretical research on scrap impurities and iron and steelmaking processes. This would improve the utilization of scrap through better technologies.


Valin is among the top 10 steel producers in China with an annual capacity of 22mn mt.  

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