METALS-Copper gains sparked by fund buying are built on quicksand

(Updates prices, adds analyst comment) By Pratima Desai LONDON, July 2 (Reuters) - Fund buying helped copper higher on Tuesday, but worries about demand prospects in top consumer China and an inventory uptrend in warehouses registered with London Metal Exchange (LME) are likely to cap prices. Traders are selling copper and other industrial metals into the rally that started around 0830 GMT on momentum buying by funds that trade on signals from numerical models rather than supply and demand fundamentals. Benchmark copper CMCU3 on the LME was up 0.5% at $9,678 a metric ton at 1609 GMT. "The market is choppy, struggling to find real direction - and recent Chinese data has done little to assure anyone about the demand outlook," one metals broker said, adding that a firmer dollar would also weigh on prices of industrial metals. Activity among smaller Chinese manufacturers grew at the fastest pace since 2021 thanks to overseas orders, a private survey showed. However, optimism was tempered by another broader survey suggesting weak domestic demand. Stocks of copper in MCUSTX-TOTAL LME-registered warehouses have climbed nearly 80% since mid-May to reach 184,475 tons for their highest levels since December. Traders say much of the metal delivered to storage facilities in Asia comes from China. Copper started to slide from May peaks above $11,100 a ton as LME stocks started to rise. However, in the longer term accelerating demand from the energy transition is likely to create shortages. "Knowing there is significantly more demand five years from now is not the same as more demand today," Marex's Global Head of Market Analytics Guy Wolf said. "The long-term outlook for base metals is very positive. The market has recognised that what used to be called ‘industrial metals’ are now ‘transitional metals’ core to decarbonisation." On the technical front, copper faces upside resistance around $9,750, where the 21-day moving average sits. In other metals, aluminium CMAL3 was up 0.3% at $2,522 a ton, zinc CMZN3 slipped 0.3% to $2,919, lead CMPB3 fell 0.8% to $2,200, tin CMSN3 ceded 0.2% to $32,830 and nickel CMNI3 retreated 1.6% to $17,080. (Reporting by Pratima Desai Editing by David Goodman, Alexandra Hudson) (([email protected])) (( For related news and prices, click on the codes in brackets: LME price overview RING= COMEX copper futures 0#HG: All metals news MTL All commodities news C Foreign exchange rates FX= SPEED GUIDES LME/INDEX ))