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New york cotton falls as market digests china reserve sale

New york cotton falls as market digests china reserve sale Source:
Date: 16-01-2013
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Cotton prices eased slightly on Monday as China's strategic reserve started selling a portion of its massive stockpile, which is large enough to supply the world's largest textile industry with raw material for one year. The selling also came as investors focused on bearish world outlook in the US government's monthly crop report released on Friday.

Erasing gains seen on Friday and earlier in the morning when prices breached 76 cents per lb, the most-active March contract on ICE Futures US settled down 0.1 cent, or 0.13 percent, at 75.52 cents per lb. Volume was average with almost 11,000 lots changing hands on the day.

With prices stuck in their recent ranges, the market took its cue from news of the auction in China where the government stockpile accounts for half of the projected surplus in the 2012/13 season. While the sale had been expected, it was enough to dampen sentiment and reinforce concerns about the impact of the fresh material on the market.

"I think we'll continue to see it choppy. Whenever that happens, it tends to pressure things," Citigroup futures specialist Sterling Smith said during the trading session. Some fear it will remove crucial demand from China's mills, which typically import their raw material. Others say the sale, alongside fresh import licenses, will stimulate demand.

The government has not yet officially confirmed it will issue new import licenses and signs emerged of weak demand for local fibre. The reserve only managed to sell half of the 38,062 tonnes it had planned to release, traders said. Fibre garnered little comfort from soaring grain prices either. Any rally in corn and soybeans is likely to encourage even greater grain and soy acreage in the spring planting season in favour of cotton. Many market participants hope this will help to eat into the global surplus.

Posting its longest rally since June, corn rose against after the US Department of Agriculture forecast stockpiles in the world's largest producer will hit a 17-year low by summer's end. In the cotton report, US data provided some encouragement with the world's third-largest cotton producer showing a large cut in the ending stocks on stronger exports and big abandonment of crops in Texas, the country's main-growing state.

But those numbers were overshadowed by global oversupply. World inventory by end-July will be at a record above $81 million 480-lb bales, the USDA said on Friday. Half of that is held by China's strategic reserve accumulated after a two-year buying spree. "China is part of it today, but when you look at the USDA data, world data still showed there's plenty of cotton around," said Jack Scoville, vice president of Price Futures Group.
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