2 June 2006
The nearby July cotton futures contract yesterday surged to its highest close since 21 April in New York. The big gain was heavily influenced by the ongoing drought in the US as well as a report from China suggesting demand for the fibre could increase massively due to severe weather conditions affecting planting.
Cotton prices in New York yesterday surged to a six-week high upon record volumes being exchanged.
The nearby July contract gained a massive 141 points to close at 52.35 cents per pound - its highest since 21 April.
However, prices on 21 April had made a similar impressive gain only to see that increase eventually turn lower on weaker demand.
But traders are optimistic that this new rise now signals the end of the low trend and that the market is moving away from the bottom.
The gains were put down to continuing dry weather which is hurting cotton in the US, especially in those areas that are not irrigated.
A report from China suggesting poor conditions for cotton crops was also absorbed by the market and made a big impact on buying interest.
According to the report from China's Cotton Research Institute, cotton planting in three regions has got off to its worst start in five years due to severe weather problems.
This is now leading cotton specialists to predict China's cotton production will be 25 per cent lower newt season (2006/07).
In turn, this will increase China's cotton demand to between 51 - 55 million bales compared to 46.5 million bales for the current 2005/06 season.
And, with the US crop being affected by dry weather and set to see a 4-5 million bale fall in cotton production next season, there will be enormous pressure that could continue to push prices higher.
The booming prices in New York today has forced up physical prices for US and Australian varieties by 140 points (CIF/CNF China).
There were also gains for other origins including Uzbek cotton, up 50 points and West African ranging from 25 to 50 points higher.
The Cotlook A Index was yesterday at 55.10 cents per pound, down 25 points.
Pakistan: The Karachi Cotton Association's Spot Rate also increased yesterday, up 25 rupees to 2,500 rupees per maund.
Prices are now in positive territory due to good demand from mills, declining stocks and rising cost for cotton yarns.
India: Demand was reportedly poor yesterday (East India Cotton Exchange) and several varieties decreased as result.
V-797 and NHH-44, for example, were down 100 rupees at 11,500 and 14,000 rupees per candy respectively.
China: Today's 328 Grade Cotton Spot Price was 7 yuan lower at 14,038 yuan per ton.
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