Sluggish demand in top consumer China and soaring inventories mean funds are likely to retreat further from the copper market, analysts say, adding more pressure to prices which have dropped around 12% since hitting record highs last month.

However, funds will return as shortages of the metal created by significant demand growth from the electric vehicle sector and new applications such as data centres start to appear.

Also fuelling last month's buying frenzy was a lower US currency, which when it falls makes dollar-priced metals cheaper for holder of other currencies, and concerns about supplies due to concentrate shortages.

Prices of copper used to make wire for conducting electricity on the London Metal Exchange (LME) hit a record high above $11 100 a tonne on May 20, a surge of nearly 25% in just seven weeks. They are now around $9 700.

"Investors are still quite long on copper in terms of speculative positions. I think it is likely to keep falling," said Dan Smith, head of research at Amalgamated Metal Trading.

"China has hit a soft patch. That will feed into what investors do over the next few months," he said.

Last month copper also hit all-time highs above $11 460 a tonne on the CME. Money managers as of June 11 were still holding net long positioning on CME copper, but it has fallen 27% from a three-year peak hit on May 21.

Prices will climb again "only if we have a pick-up of demand from China; otherwise, we are set to stay below $10 000. We need better fundamentals, not just speculative buying," said broker Robert Montefusco at Sucden Financial.

Consumption in China, representing about half of global copper demand estimated at around 26-million tonnes this year, has been soft partly due to its troubled property sector and weak manufacturing activity.

"The pain point is construction in China," said Eleni Joannides, analyst at Wood Mackenzie, adding that a level between $9 000 to $9 500 was more realistic for copper.

Tepid demand can be seen in copper stocks delivered to LME warehouses in Asia, mostly originating from China, according to sources, which at 165 175 tonnes on June 20 have jumped nearly 60% since the middle of May.

Meanwhile in warehouses monitored by the Shanghai Futures Exchange (SHFE), copper stocks have climbed more than nearly 90% since January to 322 910 tonnes.

"We see sluggish orders from power and car sectors," a copper rod producer said.

Despite lacklustre demand, future prospects mean investors will remain a feature of the market. Analysts at Citi expect copper demand from decarbonisation to rise 90% to nearly 7.6 million tonnes in 2030 from 2024.

"About 18 to 24 months ago, we began to see a material investment in commodity teams by multi-manager, macro and quant funds. This was clearly not a 'fad' as the investment was serious," said Guy Wolf, Marex's head of market analytics.

This is why financial institutions are recruiting commodity experts.

"We see a higher number of traders moving from one player to another," said Franck Borgel, a managing director at Societe Generale Corporate and Investment Banking.

"I see more and more players which are properly set up to take benefit of the market opportunity going forward."