US cotton futures closed at an all-time high on Monday, rising the daily trading limit, due in part to strong Chinese cotton prices and a steady barrage of trade buying in the market, analysts said. Cotton is the best performing commodity on the Reuters Jefferies Commodity Index, having risen nearly 90 percent in value year to date.
Tight supplies in China, the world's No 1 cotton consumer, have driven internal values up in the Asian nation to levels well above $2 per lb, preventing any kind of correction from cooling cotton futures, they said. The benchmark December cotton contract on ICE Futures US climbed the 4-cent daily trading limit to finish at $1.4623 per lb, with the session low at $1.4315. The market had risen for seven straight sessions.
Volume traded, however, was modest at best. The total amount traded in the US cotton market reached 23,897 lots at 2:45 pm EST (1945 GMT), nearly 20 percent below the 30-day average of 29,173 lots, Thomson Reuters preliminary data showed.
In China, prices for the key May cotton contract on the Zhengzhou Commodity Exchange hit a lifetime top of 33,295 yuan per tonne and last traded at 32,970 yuan, up 1,950 yuan on the day. "It's all out of China," Sharon Johnson, a cotton expert at First Capitol Group in Atlanta, said when asked for the catalyst behind Monday's rally.
"The fundamental factor for the rise (in cotton prices) is because of shortages," said Yang Guoqi, an analyst with Jinshi Futures Co Ltd. The market took note of news that China's government has ordered a crackdown on illegal activities aimed at driving up prices, the official Xinhua news agency said.
With Chinese internal prices running well above $2 per lb and average world prices in the closely followed Cotlook A index quoted on Monday at $1.618 per lb, US cotton prices are at a heavy discount and need to catch up. The Cotlook A index www.cotlook.com normally runs at a premium of 7 to 9 cents above New York cotton futures, but the index has been running at a premium above 10 cents the past few weeks.
Traders said that while the announcement by Beijing would be welcome, the market would be looking for specific actions to cool the Chinese cotton market. "We'd want to see if they can get this thing settled down. The market is way overheated," said one trader.
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