LONDON, May 20 (Reuters) - Copper's lightning rally to

record highs may not be sustainable in the coming weeks, with

action concentrated on the shipment of material to cover exposed

short positions in the U.S. Comex futures market rather than

tepid demand in top consumer China.

Prices on the CME Group's ( CME ) Comex hit a record last

week, while benchmark copper on the London Metal Exchange (LME)

rocketed on Monday to an all-time peak of $11,104.50 a metric

ton, having surged 28% so far this year.

Analysts say copper's long-term fundamentals are strong,

with a bullish outlook attached to firm demand in coming years

for applications including the global clean energy transition

and greater use of artificial intelligence (AI).

That is set against constrained supply, prompting a race

among miners for high quality projects.

The current run higher appears to be on shaky ground,

motivated by heavy speculative activity and a dash to cover

large short positions - which can be bets on lower prices, or

producers hedging their output - taken by traders.

At least 100,000 metric tons of copper are en route to the

U.S. CME exchange, two sources with direct knowledge told

Reuters on Monday, which will go a good way to allow parties to

deliver against bearish positions and take the heat out of the

market.

"At the moment, it's pure speculative rather than real

demand," said Robert Montefusco at broker Sucden Financial.

"It all depends on whether that demand becomes real, because

once the specs are out, it'll just fall away."

On Comex, there was a total net short position of 7,525

contracts or 85,334 tons, data showed on Friday.

There was a big difference however between the net long

position of speculators at 72,785 contracts (825,382 tons) and

the net short position by producers of 91,502 contracts (1.04

million tons).

SHIPMENTS FROM SOUTH AMERICA

Sources have told Reuters that commodity traders including

Trafigura and IXM, as well as Chinese copper producers, are

among those caught in a short squeeze on Comex.

Many of those shorts have arranged for copper shipments to

the U.S., from producers in Chile and Peru, re-directed vessels

that had been headed to China on long-term contracts, and some

copper withdrawn from LME warehouses.

More than 20,000 tons from Chile are expected to arrive in

the U.S. by the end of May, with bigger volumes lined up to land

in June and July, two producer sources said.

The transfer of copper from LME-registered warehouses to

Comex however could be limited. Chinese and Russian copper,

accounting for 67% of LME stocks, are not eligible for Comex

delivery.

There are 17,250 tonnes of copper produced in Chile, Peru

and Australia which are U.S. duty-exempt and were in the LME

system at the end of April, exchange data showed.

CHINESE CONSUMERS, SMELTERS HOLD BACK

Consumption in China, which accounts for about half of

global copper demand, is lacklustre due to a troubled property

sector and industrial consumers that are baulking at record

prices.

China on Friday announced "historic" steps to stabilise its

crisis-hit property sector, but it will take time for a sector

that is usually a big consumer of industrial metals to rebound.

For the time being, signals are gloomy, with the Yangshan

copper premium , which reflects demand for copper

imported into China, hovering at zero after sinking to negative

$5 a ton last week, compared with $60 in March.

"Given significant financial length in copper and persisting

slack Chinese fundamentals for the time being, we think there

remains the risk that investors lose some patience with the

story," JPMorgan analysts said in a note on Monday.

"In our view, this could ultimately be a very healthy

correction that acts to kick start Chinese demand out of its

stupor."

Much potential Chinese demand is on hold and could kick in

at lower prices, JPMorgan added.

Investors and analysts are still bullish for the medium and

long term due to rising global demand and disruptions to mine

supply.