ICE cotton rose on Monday, touching the highest level in more than a week, supported by short covering and expectations of continued demand in China as the government in the world's top textile market began stockpiling. The most-active December cotton contract on ICE Futures US gained 0.29 cent, or 0.3 percent, to settle at 83.50 cents per lb.
The day's gains followed a three-week slide. Prices spiked to an intraday high of 84.33 cents a lb on trade short covering and a lack of selling from speculators, who have been abandoning a bullish position in fiber in recent sessions, dealers said. China began stockpiling cotton from the 2013 crop, lending support to prices as it stirred hopes of another year of strong demand for fibre in the world's top consumer. "There has been talk about China changing the way it procures cotton, but they began for the season. So they're not abandoning the stockpiling program this year," said Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia.
China's government buying began after prices fell below a price support threshold for five days, US traders said. Earlier this year, Beijing announced plans to continue the reserve-building program it launched in 2011. The program has led to voracious demand for foreign cotton.
The start of buying, while expected, alleviated merchants' concerns that China would make any drastic changes to the program this year. China is preparing to scrap the program in favour of grower subsidies, Reuters previously reported. Speculators have nearly halved their bullish stance in cotton futures and options in the past two reporting weeks, Commodity Futures Trading Commission data showed on Friday, leaving a selling vacuum. Prices are up about 1.5 percent over the past two sessions, extending gains seen on Friday after US weekly export data showed evidence that falling prices had rekindled demand.
Even so, the second-month contract is down nearly 11 percent from last month's peak of 93.72 cents set on August 16. December prices surpassed the 200-day moving average of 83.84 cents during Monday's rally before closing lower. Dealers eyed a monthly supply and demand report from the US government due later this week, with many expecting an increased output forecast for India, the world's second-largest producer.
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