SHANGHAI, China — The Chinese government’s latest five-year plan highlights the country’s scrap industry as a key sector, leading market players to expect government-backed growth in that industry in the near future.

The Chinese government said it wants to encourage more—and more-efficient—recycling of the growing reservoir of waste material emerging after decades of rapid economic growth, particularly as it encourages the steel industry to rely less on iron ore and more on ferrous scrap.

The government also wants to tackle China’s carbon emissions and environmental problems by supporting the emergence of "clean" industries, such as recycling.

As part of the apparent policy shift, the government could apply a value-added tax (VAT) rebate on scrap sales starting next year, sources said.

The scrap industry association has been lobbying the government for possible incentives and "some tax cut is expected in 2013 to encourage production," a source at the China Association of Metal Scrap Utilization (CAMU) told AMM sister publication Steel First.

CAMU said it hopes the VAT will be slashed to 8.5 percent from 17 percent.

Ferrous scrap companies are now eagerly awaiting the expected tax cut, which may help them increase supply to meet growing demand for scrap.

"China’s scrap supply remains tight and scrap only (accounts for) a small proportion of raw material feed at Chinese steel mills. To increase scrap supply and consumption, an incentive like a tax cut is needed," a steel mill source in eastern China said. 

A version of this article was first published by AMM sister publication Steel First.