Copper bears have long been predicting a surge in supply from the world's copper mines. But they may have neglected to consider one rather large mine: the "urban mine" of scrap.
The copper wires and tubes from old air conditioning units, cars and buildings, and the offcuts of metal used in factories form an important but often overlooked source of supply of copper.
Scrap accounts for roughly a third of global usage of the metal, according to the International Copper Study Group. In 2009, the disappearance of scrap from the global market amid a tumble in prices and contraction in industrial activity helped to spur the rebound in copper prices.
Now, traders say, something similar is occurring. A sharp drop in the availability of scrap copper has caught the attention of some hedge funds and traders, making them bullish about the red metal even in the face of widespread negativity towards commodities.
"Scrap is probably the key reason we are positively biased towards the copper market at the moment," says one commodities hedge fund manager.
Data on the scrap market are notoriously sketchy, even by the opaque standards of metals markets. But in the past three months, China's scrap imports have been 14 per cent lower than the same period a year ago. Some traders and analysts estimate that scrap availability on the global market could be down by as much as 10-20 per cent this year.
That is less dramatic than the drop-off in supply in 2009, but if they are right, the impact on the copper market balance would still be significant.
Some 3.6m tonnes of refined copper, the form traded on the London Metal Exchange, are produced from scrap each year. That means a 10-20 per cent drop would remove 360,000-720,000 tonnes of supply from the market - equivalent to the closure of one of the world's largest copper mines.
By contrast, the consensus in the industry just a few months ago was that copper supply would outstrip demand this year by about 300,000-500,000 tonnes.
A senior executive at a large Chinese copper smelter concludes: "The shortage of scrap means the market is going to be more balanced, and not a deficit market."
The main reason for the drop in scrap supplies is the weak state of the global manufacturing industry over the last few years, meaning that less offcuts are produced by factories. At the same time, sluggish growth across much of the world means that fewer people are scrapping old air conditioning units and cars to buy new ones.
In addition, the fall in copper prices from over $8,000 a tonne in February to $6,800 in April has inspired some scrap dealers - or "scrappies" - to sit on stocks.
Together, those factors have triggered a dash to secure scrap among Chinese smelters.
"The situation on copper scrap in China remains quite significant," says Michael Lion, chairman for Asia of Sims Metal Management, the world's largest listed scrap merchant.
The prices of some of the most widely traded grades of scrap - which go by names such as "millberry" and "birch cliff" - have risen to their highest levels relative to London Metal Exchange copper prices for several years, he says.
The tightness in the scrap market is already making itself felt - particularly in China, whose expanding copper smelting industry accounts for 60 per cent of global copper scrap imports.
Gayle Berry, metals analyst at Barclays, says that the effect has been amplified because some Chinese smelters require a certain proportion of scrap to prevent overheating when they are processing low-grade copper ore.
In the past six weeks, three of China's largest copper producers - Jiangxi Copper, Jinchuan Group and Yunnan Copper - have shut down smelters with a combined production capacity of 400,000 tonnes a year due to the shortage of scrap.
The tightness in the scrap market has also coincided with several other shifts in the market to make traders more bullish.
First, there have been disruptions at several large mines. A pit wall collapse has shut down Rio Tinto's Bingham Canyon mine in Utah, which produced 163,000 tonnes of copper last year. Freeport McMoRan's Grasberg mine in Indonesia this week declared "force majeure" on its supply contracts due to a shutdown following an accident. And Codelco, the worlds' largest copper miner, has signalled to some of its customers that it may delay shipments over the summer or even buy metal on the open market due to production problems at Chuquicamata, according to traders.
Second, the recent fall in prices has spurred a scramble among Chinese traders and consumers to stock up. That has led "bonded" inventories around Chinese ports to fall by some 200,000-250,000 tonnes in recent months to their lowest level since the start of 2012, according to Max Layton of Goldman Sachs.
Finally, Beijing's powerful stockpiling agency, the State Reserves Bureau, has been making enquiries about buying copper in recent weeks - a move which could further tighten the market.
For all that, many remain sceptical about the impact of lower scrap supplies on the overall outlook for copper. Together with other production disruptions, the lower scrap availability may bring supply and demand into balance this year, but higher mine production will ultimately force prices lower, they argue.
"The scrap developments are supportive, but in themselves I don't see them as a driver of a sustained bull move," says Mr Layton, who describes scrap as an "automatic stabiliser" for the copper market.
Or as Duncan Hobbs, analyst at Macquarie, puts it: "Over any length of time scrap is neutral for the market balance. You will still have people ripping up cables."