China’s Ministry of Industry and Information Technology (MIIT) has released new guidelines which pave the way for local governments to set up new ferrous scrap processing capacity with the aid of private capital. The move is the latest attempt to rejuvenate a struggling sector which could be a thorn in the side of international iron ore miners in years to come, Kallanish notes.

The new guidelines for green and energy conservation projects in 2015 and 2016 say provincial governments should each select 10-20 projects across energy saving technologies, digital energy efficiency improvements, cleaning up existing industry and comprehensive utilization of resources. MIIT will then approve projects from the nationwide list for public-private partnership status. Private capital can take up to 40% of the government-led projects.

MIIT has already granted scrap processors a 30% VAT rebate to reduce costs and release a list of capacity which meets its standards, and is therefore able to enjoy preferential policies. The goal is to boost the amount of ferrous scrap used by reducing costs, which are currently prohibitive.

As long as China’s crude steel production is falling or stable, every extra tonne of ferrous scrap used is almost 1.5 tonnes of iron ore China does not need to import, a fact not lost on China’s strategic planners at the National Development and Reform Commission (NDRC).