Cotton futures finished lower on Wednesday as the market fell for the fifth session in a row as soft commercial demand and a rate increase in top consumer China undermined the market and could point to further losses in fibre contracts, brokers said. The key December cotton futures on ICE Futures US dropped 2.10 cents to settle at $1.1342 per lb, dealing from $1.126 to $1.1773. For the third position contract, it was the lowest finish since November 30.
Volume traded stood at 10,600 lots at 2:55 p.m. EDT (1855 GMT), almost 50 percent below the 30-day norm, Thomson Reuters preliminary data showed. Cotton was eventually undermined by news that China's central bank raised interest rates for the third time in 2011, making it clear that taming inflation is a top priority.
The step may "make it more difficult for mills in China" to procure cotton especially as the economy there slows, Sharon Johnson, senior cotton analyst for commodities brokerage Penson Futures, said. "Everybody is dealing with high prices," Johnson said. After an initial rebound following four days of losses, the market faltered after news also hit regarding Portugal's credit downgrade, reigniting fears that shaky global economic growth will undermine and cut cotton consumption, analysts said.
Both China and Portugal hit markets hard. A weak technical picture also deflated the December cotton contract as it fell below key support pegged at $1.1376, the low hit on May 13. The next level December could take aim for would be $1.10, and then all the way to the November 24 low at $1.0663, the dealers said.
Traders said the market is still monitoring conditions in Texas and the discussion is now going to focus on how much of the US cotton crop would be harvested in the autumn. Forecaster Telvent DTN forecast hot and dry weather in Texas through Sunday, with temperatures hitting 100 degrees Fahrenheit (38 Celsius) and providing no relief in sight for the area. The market took note of poor rains plaguing India's cotton areas and talk the country's cotton exports could suffer in 2011/12. Open interest in the ICE futures cotton market stood at 138,797 lots as of July 4, ICE Futures US data showed. Volume traded on Tuesday stood at 16,681 lots, it added.