China's move to allow Chinese firms to apply for exemptions to import tariffs on nearly 700 products from the US will likely have a muted impact on scrap metal markets because of existing import quotas and an impending reclassification of scrap grades.
Beginning 2 March, Chinese scrap metal importers will be eligible to apply for exemptions to tariffs on imports of copper and aluminum scrap, as well as other recycled metals, which were imposed as part of the US-China trade war, China's finance ministry said.
The new policy extends upon a similar trial program that was launched in May 2019 which allowed Chinese importers to apply for exclusions to import tariffs levied on copper scrap and other recycled metals from the US that went into effect in April 2018 for up to 100pc of the tariffs.
As a result, eligible importers may receive one-year exemptions from the date of approval on the 25pc tariffs placed on US copper scrap and 50pc tariffs on aluminum.
The policy is designed to better support the needs of Chinese consumers in the face of a slowdown in domestic economic activity because of the coronavirus outbreak.
Still, market participants are skeptical that it will have a meaningful impact on the market due to existing import quotas which have severely limited imports so far this year.
"It looks good but in effect there is no significant market change so it is only a gesture," said one US exporter, noting that the tariff exemptions will be more supportive to other industries that are not under such strict restrictions.
China's scrap import quota currently approved for 2020 is 592,370t, of which copper accounts for 302,071t, aluminum 284,449t and ferrous 5,850t.
Further muting the impact of the tariff exemptions is China's impending reclassification of scrap grades, which will likely result in new commodity names and potentially new harmonized tariff code used to broadly classify commodities.
The government will implement the new scrap metal import standards from 1 July. The existing import quota system is expected to continue operating until the second quarter.
Under the new rules, copper, brass and aluminum scrap that meet the stringent standards will be reclassified as raw material and have no import restrictions.
China is expected to begin releasing its final round of quarterly scrap import quotas around April.
