Cotton inched up on Tuesday, stabilising after falling during the previous session when the Cypriot bailout plan sparked concern over eurozone stability and incited a cross-commodities sell-off. The most-active May cotton contract on ICE Futures US gained 0.3 cent, or 0.3 percent, to settle at 91.13 cents per pound.
Cotton climbed to 93.93 cents a lb last week, the highest in nearly a year, and prices have risen more than 20 percent this year amid investment by speculators and a sense of tightening global supplies. The Dow Jones Industrial Average slid on Tuesday after posting gains, and cotton prices tracked the equities markets for much of the session before inching up to close positive, brokers said.
The cotton futures market tends to correlate with the Dow Jones Industrial Average. Fibre prices fell on Monday, the second daily loss in fifteen sessions, as a bail-out plan for Cyprus sparked concerns over euro zone stability. Lawmakers rejected a key element of the proposed bailout on Tuesday, after the cotton market settled. Trading was mixed throughout Tuesday's session, but it was an "inside day," where cotton failed to test the previous session's highs or lows, said Sharon Johnson, cotton specialist for Knight Futures.
Trading volumes were light, at about 13,000 lots, nearly 45 percent below the 30-day average, preliminary Thomson Reuters data showed. "We're moving sideways, letting some of the overbought status correct itself," Johnson said. The spot cotton contract is technically overbought, with a 14-day relative strength index above 80.
Cotton's recent rally has been driven by investment from speculators who have boosted their bullish bets in cotton futures and options to a five-year high. Open interest totalled 212,902 contracts on Monday, near a high of 214,167 lots reached last month, the most since February 2011, according to ICE data. Physical demand and tightening global supplies have been underpinning the futures market, according to merchants, brokers and growers.
This month, the US Department of Agriculture revised upward its projections for global consumption during the 2012/13 marketing year through July, citing recent sale and shipment levels. China, the world's No 1 textile market, is expected to issue extra import quotas in efforts to support struggling textile mills. Continued purchasing by China would further support New York prices. The world is expected to see a record global surplus by the end of the crop year, but more than half of that is expected to become part of China's stockpiles and is seen as unavailable to the global marketplace.
Beijing began building its strategic reserves in 2011, paying above global prices to support farmers. China is forecast to have enough cotton in its stocks by the end of July to satisfy demand for more than a year. Prior to the year-to-date gains, cotton registered two years of losses, as lower-priced synthetic alternatives eroded demand for natural fibre and global surpluses grew.
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