ICE cotton fell over 1 percent on Thursday with speculators liquidating long positions as news that China's state reserve will sell some of its massive reserve offset robust weekly export sales data. While a sale this month was expected, traders fear it may dampen demand for foreign fibre from mills in the world's No 1 textile market.
The most-active July futures contract on ICE Futures US settled 1.4 percent lower at 85.40 cents per lb, hovering close to six-week lows hit a day earlier. Fibre underperformed the broader commodity market. The 19-commodity Thomson Reuters-Jefferies CRB index ended the day up 0.72 percent buoyed by energy prices. US stocks closed lower though following weak data on factory activity, the latest in a series of indicators pointing to weak growth.
"These are not cotton people, this is speculative (selling)," said Lou Barbera, cotton dealer at ICAP Cotton in New York. In cotton, speculative longs have been exiting positions they have built since mid-January. Their bullish bets drove prices to close to 94 cents per lb, a one-year high, last month. Reflecting the extent of the withdrawal, open interest fell almost 4,000 lots on Wednesday to 181,014, its lowest since mid-January, when the hedge funds and speculative buying started.
Starting on Friday, the Chinese government will offer cotton imported in 2011 and purchased from the 2012 harvest, and will allow textile mills to buy up to 8 months' worth of consumption, the China National Cotton Reserves Corporation said. After a two-year buying spree, the stockpile is big enough to supply China's mills with their raw material for more than one year. News of Beijing's sale overshadowed signs that underlying demand picked up as prices dropped off their one-year peaks. US government data showed weekly export sales States hit a two-month high of 221,000 running bales. That is up 44 percent from the previous week and 53 percent higher than the prior four-week average. While it included a cancellation of some 10,300 bales from Mexico, some 115,200 bales were sold to China.
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