Cotton for March delivery plunged as much as 4.5 percent to $1.234 a pound on ICE Futures U.S. in New York, before trading at $1.2596 at 2:50 p.m. Singapore time. The contract is set for a 6.2 percent weekly loss, the biggest for the most-active contract since July 2009.
Prices fell on speculation China will add to last month’s rate rise, the first since 2007, by the end of December. The central bank may raise borrowing costs as efforts to attack inflation with subsidies, sales of food reserves and the threat of price controls are likely to prove insufficient, said analysts surveyed by Bloomberg News.
“The reality is that the jumping around at the moment is financial markets-driven, as opposed to any real connection to any significant changes in fundamentals,” Wayne Gordon, a senior analyst at Rabobank Groep NV said by phone from Sydney today. “We’ve seen speculators come out of the market.”
China, the world’s biggest cotton user, needs to import 20 million bales of the fiber this year to meet rising demand from the domestic textile industry, Sunny Verghese, chief executive officer of Olam International Ltd., one of the world’s three biggest cotton suppliers, said Nov. 15.
Production in China is forecast by the U.S. Department of Agriculture to trail domestic demand for the 12th straight year, pushing the nation’s stockpiles to the lowest level since 1995.
Stockpiles Drained
Global demand for the fiber was forecast to outstrip production for a fifth straight year, draining stockpiles to 42.2 million bales before next year’s harvest. That will be the smallest since the marketing year ended 1996, according to USDA data.
“While there’s going to be sharp swings in prices due to speculator influence in the market, broadly speaking, prices are well underpinned at these higher levels because the fundamentals are quite tight,” he said, referring to global stockpiles.
Cotton futures yesterday surged by 5 cents, the maximum limit set by the exchange, to $1.2915 a pound in New York.
Global output will fall short of demand by 525,000 tons, down from a shortage of 778,000 tons forecast last month, Birkenhead, England-based Cotlook Ltd. said in a statement yesterday.
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