(Reuters) – Chinese cotton buyers canceled orders for over 105,000 bales last week, U.S. government data showed on Thursday, stoking worries over contract defaults that have plagued the market in recent years and sending prices down more than 1 percent.
The drop in sales to China was the biggest since June 2012, the last time the fiber market saw a price rout of the magnitude witnessed over the last several months.
The December cotton contract on ICE Futures U.S., the benchmark for the 2014/15 cotton crop, fell as much as 1.2 percent following the report and was down 0.58 cent, or 0.9 percent, at 66.56 cents a lb by 10:57 a.m. EDT (1457 GMT).
Prices for December, representing the 2014/15 crop, have plunged 20 percent since May highs, as concerns about supply tightness evaporated amid expectations of a bumper U.S. crop and waning Chinese demand due to a government policy overhaul.
In the week ended Sept. 4, millers and merchants in China canceled 105,400 bales of upland cotton and switched 6,400 bales to other destinations, offsetting meager new commitments of 5,900 bales, according to weekly U.S. Department of Agriculture (USDA) data.
Buyers in Taiwan also canceled 1,800 bales. The reductions from two key buyers of U.S. cotton contributed to a sales report that showed more sales canceled than booked for the first time in months.
“There’s no way to say what caused the cancellations, but certainly there were a lot of higher-prices sales,” said Andy Ryan, a senior risk management consultant with INTL FCStone in Nashville.
Traders cautioned that the cancellations were not necessarily a sign of weak overall demand, and said merchants could be sourcing from other origins ahead of the main U.S. harvest in the coming months.
The cotton industry is still reeling from waves of contract defaults due to wild price gyrations in 2011 that left major merchants, including Glencore Plc and Noble Group Ltd , nursing hundreds of millions of dollars of losses.
Farmers defaulted on traders when prices soared to historic highs and mills reneged after they had tumbled in kind.
“This is disappointing to anyone trying to find a bottom,” Ryan said, describing demand as “tepid.” (Editing by Paul Simao)