Cotton rebounds from 1-1/2 month low as day’s dips prompt buying

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* Fiber posts largest daily gain in 2 weeks

* Open interest seen declining

(Reuters) – ICE cotton recovered from a 1-1/2 month low to post its largest one-day gain in two weeks on Wednesday, as declines to session lows prompted limited buying after a recent selloff by investors concerned over the health of the global economy.

The most-active July cotton contract on ICE Futures U.S. gained 1.23 cents, or 1.4 percent, to settle at 86.65 cents per lb, recovering from a drop to 85.05 cents a lb, the second-month contract’s lowest price since early March.

A late-session recovery pushed cotton up to its largest gain in two weeks, as the day’s dip prompted buying.

Earlier in the week, cotton posted its steepest one-day loss in nearly a month amid a broad commodities selloff, as concerns over economic growth prompted investors to move away from risk.

“The rally shows some of the weak longs are out of the market,” said Knight Capital’s cotton specialist Sharon Johnson. She noted that limited mill buying may have come in on the session’s lows.

Open interest fell for a fourth session to total 184,661 contracts, down from 210,629 lots on April 11, according to ICE data.

Activity has moved swiftly out of the May contract ahead of its expiration. Open interest declined as some investors did not roll positions forward and instead took profits, Johnson said.

Cotton surged about 18 percent in the first quarter of the year as speculators boosted their bullish stance. They have since been seen taking profits.

Speculators slashed a large bullish bet in cotton futures and options in the week ending April 9, U.S. government data showed on Friday.

The spot May contract settled up 1.3 cents, or 1.6 percent, at 84.65 cents a lb on Wednesday, down about 9 percent since reaching a one-year high of 93.93 cents on May 15.

The physical demand that underpinned fiber’s recent rally has been waning. The decline has deterred mills, making them hesitant to buy into the falling market in recent days.

That, combined with a seasonal downturn in demand, has contributed to more subdued demand in the cash market recently, dealers said.

“Mills get more discriminate as the season wraps up,” said John Flanagan, an analyst at Flanagan Trading Corp in North Carolina.

Some underlying support to the futures market was seen on expectations of continued buying fromChina, the world’s largest textile market, he said.

The country is set to continue its strategic buying program this year.

In 2011, Beijing began building its stockpiles, paying above global prices to support local farmers.

China is forecast to hold more than half of global inventories by the end of the crop year through July, enough to feed its demand for fiber for more than a year.

High domestic prices have made lower-priced imported cotton attractive to Chinese mills, even with the additional costs including import duties and shipping.

“The bullish factor in the market is that China appears willing to hold their prices at high levels domestically. As long as they do, they put a floor under the whole world market,” Flanagan said. (Reporting by Chris Prentice; editing by Jim Marshall)

Source: Reuters

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