Cotton Surges by ICE Limit on Speculation Chinese Demand will Climb
July 2, 2009 By Yi Tian
Bloomberg
Cotton prices surged the most allowed by ICE Futures U.S. on speculation that demand for the fiber is increasing in China, the world’s biggest consumer.
Manufacturing in China expanded for a fourth month as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending spurred the economy. Domestic demand for textiles increased in each month from January to May, the China Securities Journal reported yesterday, citing an industry official.
“Demand is there,” Jeffery Lu, a cotton analyst at Noble Group Ltd., said in a telephone interview from Shanghai. “Traditionally, June, July and August are the peak season where mills draw down on old supplies and build up new ones to meet demand.”
In New York, cotton futures for December delivery jumped the maximum of 3 cents, or 5.2 percent, to 60.48 cents a pound. The fiber climbed 1.1 percent in the previous two days.
In the second quarter, cotton futures jumped 24 percent, the most since the fourth quarter of 1994, as declines in global planting outpaced slackening demand.
As of yesterday, China sold 33 percent of the fiber reserves it plans to auction, according to reports by industry watcher Cottonchina.org. On May 21, the government said it would sell 1.52 million metric tons from reserves in a bid to ease tight domestic supplies.
The government may boost imports after the auctions because domestic supplies are trailing demand, Lu said.
Funds ‘Rebalancing’
Purchase orders were triggered after prices reached 58.48 cents and 59.51 cents, Mike Stevens, an analyst at Swiss Financial Services in Mandeville, Louisiana, said in an e-mail.
“Talk is the quarterly rebalancing by some of the funds has brought them back into the market,” Stevens said. “Today’s move is on technical considerations.”
Speculation that India may harvest a smaller cotton crop than forecast also supported prices, Sholom Sanik, an analyst at Friedberg Mercantile Group Ltd. in Toronto, said today in a report.
“The Indian crop depends heavily on a successful monsoon season, and thus far the weather has not been ideal,” Sanik said. “Should the monsoon not improve, the estimate for the current forecast for a record crop of 25 million bales could not be achieved.”
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